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Edited version of your written advice
Authorisation Number: 1012810119798
Ruling
Subject: Fuel Tax Credits- Evaporation
Question
Are you entitled to claim fuel tax credits for diesel fuel acquired and that subsequently evaporates from your mine site tanks?
Answer
Yes.
This ruling applies for the following periods:
2011 - 12 income year
2012 - 13 income year
2013 - 14 income year
2014 - 15 income year
2015 - 16 income year
2016 - 17 income year
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are a GST Group representative and are registered for goods and services tax (GST).
You own and operate a number of mines.
You purchase diesel fuel for use in your mining operations (vehicles and equipment) on the mine from various fuel suppliers. The fuel is transported to the mine site and delivered into a number of bulk storage tanks at the mine site. The fuel from the tanks is then dispensed to vehicles and equipment on the mine sites for use in connection with the mining operations.
The fuel tanks at the mine sites do not have vapour recovery systems in place. The bulk fuel tanks do not have floating blankets or chemical additives to reduce the amount of evaporation.
You have been claiming fuel tax credits in relation to diesel fuel used on the mines using the constructive method of apportionment.
Relevant legislative provisions
Fuel Tax Act 2006 section 41-5
Reasons for decision
Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent you do so for use in carrying on your enterprise. You must be registered or required to be registered for GST at the time of acquisition of the fuel. Effectively, section 41-5 applies to fuel you acquired with the intention of using it in carrying on your enterprise.
The term 'use' should be interpreted in a manner that gives effect to the object and purpose of the FTA. This requires consideration of the word in the context of the relevant provisions of the FTA, and the policy intent of the FTA, as evidenced in the Revised Explanatory Memorandum to the Fuel Tax Bill 2006 and the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 (Revised Explanatory Memorandum).
The word 'use' is not a defined term in the FTA and therefore takes its ordinary meaning. The term 'use' means 'expend or consume in use', which in turn requires that the fuel be expended or consumed, such that it no longer exists as fuel, by putting it into service in carrying on your enterprise.
Expend and consume are relevantly defined in The Macquarie Dictionary, 2001 rev. 3rd edn The Macquarie Library Pty Ltd, NSW (the Macquarie Dictionary) as:
expend 1. to use up: to expend all ones energy; to expend time unnecessarily; to expend care on something
consume 1. to destroy or expend by use; use up 3. to destroy, as by decomposition or burning.
Therefore, fuel is 'used' when expended or consumed such that when it no longer exists as fuel.
At paragraph 1 of FTD 2009/1: Fuel tax: what is the meaning of 'use' for the purposes of section 41-5 of the Fuel Tax Act 2006? the Commissioner explains that for the purposes of the FTA, fuel would be used in carrying on your enterprise if, as an ordinary incident of putting it into service in the course of carrying on that enterprise, it ceased to exist as a fuel.
It is further explained at paragraph 2 of FTR 2009/1 that this 'ordinary incident of putting it into service' encompasses such uses as:
• fuel used as a solvent (for example, as a cleaning agent where after use it can no longer be used as a fuel); or
• …
• fuel ceasing to exist through evaporation, temperature changes, or irrecoverable loss through leakage from a fuel tank while the vehicle is in motion.
The latter point supports the policy intent as outlined in paragraph 2.37 of the Explanatory Memorandum to the Fuel Tax Bill 2006 where it is stated:
'Use' will also include the loss of fuel through evaporation and temperature changes in the course of carrying on a taxpayer's enterprise.'
You purchase diesel fuel from the fuel suppliers for use in your mining operations. The fuel is delivered to the mines and stored in bulk site tanks at various locations within the mine sites. The fuel is to be dispensed to vehicles and equipment for use in connection with the mining operations.
The bulk fuel tanks at the mine sites do not have floating blankets or chemical additives which reduce the incidence of evaporation. The fuel tanks do not have vapour recovery systems in place. It is therefore reasonable to conclude that a quantity of fuel in the storage tanks vaporises and this vapour vents freely into the atmosphere at the time fuel is dispensed to vehicles and equipment.
As such, in carrying on your enterprise, there is loss of fuel through evaporation and temperature changes. It is considered that this lost fuel has been 'used' in carrying on your enterprise.
You are entitled to a fuel tax credit for diesel fuel that has evaporated from the bulk tanks on your mine site.