Edited version of your written advice

Authorisation Number: 1012868615863

Date of advice: 28 August 2015

Ruling

Subject: Excise ~~ Fuel tax credits ~~ Eligibility

Question 1

Do you have entitlement to fuel tax credits under section 41-5 of the Fuel Tax Act 2006 (FTA) for fuel you acquire and provide under your hire equipment arrangements?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 2018.

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You carry on an enterprise which involves the provision of equipment under hire arrangements to hirers.

You are registered for goods and services tax (GST) and was registered for GST that the time of acquisition of the taxable fuel.

You are registered for fuel tax credits (FTC).

You hire various types of equipment to hirers.

You arrange the delivery and collection of your hire equipment. You provide full maintenance and servicing of your hire equipment.

You purchase taxable fuel from fuel wholesalers and provide this fuel to hirers under the terms of your equipment hire agreements.

The arrangement for the hire of your equipment generally includes the following documentation:

1. hire enquiry

2. rental quotation

3. rental agreement;

4. terms and conditions.

Your hire equipment is provided to hirers full of fuel and must be returned full of fuel otherwise refuelling charges apply.

Under some hire arrangements you are responsible for refuelling equipment hired whilst the equipment is on the hirer's premises. Under other hire arrangements you provide a refuelling option to the hirer whilst the equipment is on the hirer's premises.

You charge for refuelling at a flat rate per litre of fuel which is outlined in your hire documentation.

The tax invoices you issue for equipment hire list fuel recovery as a separate line item.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5 and

Fuel Tax Act 2006 subsection 41-15(1).

Reasons for decision

Question 1

Summary

You have entitlement to FTCs under section 41-5 of the FTA for fuel you acquire and provide under your hire equipment arrangements.

Detailed reasoning

Section 41-5 of the FTA states that you are entitled to an FTC for taxable fuel you acquire to the extent that you do so for use in carrying on your enterprise, provided you were registered or required to be registered for GST at the time you acquired the fuel.

However, your entitlement to FTCs is also affected by other provisions of the FTA.

Subsection 41-15(1) of the FTA states that you are not entitled to an FTC for taxable fuel if it is reasonable to conclude that another entity has previously been entitled to an FTC.

Acquisition of taxable fuel

You have stated that you purchase taxable fuel from fuel wholesalers, which is in turn provided to hirers under the terms of your hire agreements. We consider that you have acquired this taxable fuel for the purposes of section 41-5 of the FTA.

Disposal of fuel

Fuel Tax Ruling 2009/1: entitlement to a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 in a vehicle or equipment hire arrangement (FTR 2009/1); outlines our views on entitlements to FTCs under vehicle and equipment hire arrangements.

Paragraph 16 of FTR 2009/1 states that where the hire company acquires fuel, and does not dispose of the fuel to the hirer, the hire company will be entitled to an FTC for fuel used in the hire vehicle or equipment in carrying on their enterprise, subject to the disentitling provisions.

Therefore it must be determined if you dispose of the fuel you provide under the hire arrangements to the hirer.

At paragraph 29 of FTR 2009/1 the Commissioner refers to an entity being provided the 'right or [a] licence to use another entity's fuel'. In this regard the following is stated at paragraph 30 of FTR 2009/1:

The following circumstances may be indicative of a hire company's intention to only provide the hirer the licence to use its fuel;

• the hire company charges a flat fee which is inclusive of all fuel used irrespective of the quantity used, including refuelling the vehicle or equipment, or

• the hire company provides the fuel for no charge.

We consider that the purchase orders from customers, and your 'Hire Enquiry', 'Rental Quotation', 'Rental Agreement' and 'Rental Terms and Conditions' documents in combination provide the terms of your hire agreements.

The hire arrangements deal with fuel for the equipment as follows:

• the equipment is supplied full of fuel;

• *the rate per litre to be charged for refuelling the equipment on-site is set out in the Hire Enquiry;

• the rate per litre to be charge for refuelling the equipment on return is set out in the Rental Quotation.

*You refuel the equipment as part of your supply for the hire of the equipment whilst it is on the hirer's premises.

As such, under the hire arrangement you provide the taxable fuel for use in the equipment. The initial quantity of fuel provided with the hire equipment is not separately charged. Where the equipment is not returned fully fuelled, you charge the hirer, at a flat rate and not at the spot rate you paid when you acquired the fuel from your fuel wholesaler for refuelling the equipment.

Further, the hire arrangement provides the hirer with the option of including the taxable fuel required to operate the equipment during the hire period. You supply this fuel and charge the hirer as part of the hire arrangement.

Taking into account all the documents that make up the hire agreement, and the arrangement for the provision of the fuel used in the equipment, we do not consider that you dispose of the fuel to the hirers under the terms of your hire agreements.

Use in carrying on your enterprise

In Gem Plant Hire Pty Ltd ATF The Condello Family Trust and Commissioner of Taxation [2012] AATA 852 it was found that section 41-5 of the FTA is expressed in wide enough terms to contemplate use by actions of another entity so long as the use is in carrying on the enterprise of the taxpayer in question, whether or not the use might also be in carrying on another taxpayer's enterprise.

Your enterprise involves earning rental income by hiring out various types of equipment to hirers. The only consumption of the fuel is by the use of the equipment which is as an incidental part of your enterprise. It does not matter that the equipment is also being used in the carrying on of the enterprise hiring the equipment, as they did not acquire the fuel as stated above.

Registered for GST at the time you acquired the fuel

You are registered for GST and were registered at the time of acquisition of the taxable fuel.

Reasonable to conclude another entity has previously been entitled to an FTC

We do not consider that it is reasonable to conclude another entity has previously been entitled to an FTC as per subsection 41-15(1) of the FTA for the fuel provided under your equipment hire arrangements with your customers for the following reasons:

• Your fuel wholesalers have sold the fuel to you and would not have an entitlement to an FTC for the fuel you acquire from them.

• You do not dispose of the fuel to the hirers of your equipment under the terms of your hire agreements, hence they have not acquired the fuel from you under the equipment hire arrangement.

• Under the terms of your hire agreements you control the quality of the fuel used in your hire equipment, and the customer is required to return the equipment (including portable fuel tanks) at the end of the hire period

Therefore, under section 41-5 of the FTA you are entitled to FTCs for the taxable fuel you acquire from your fuel wholesalers and provide to hirers under the terms of your hire agreements, as the use of this fuel is an incidental part of your enterprise and you were registered for GST at the time you acquired the fuel..