Edited version of your written advice

Authorisation Number: 1012888368661

Date of advice: 2 October 2015

Ruling

Subject: FTC - Auxiliary Equipment Apportionment Methodology

Question 1

Is the apportionment method outlined in calculating fuel tax credit claims for fuel used by auxiliary equipment (i.e. air-conditioning units) across the fleet of buses, considered 'fair and reasonable' by the Commissioner of Taxation (Commissioner)?

Answer

Yes.

Question 2

Can the resulting fuel-use apportionment percentage be used to work out their fuel tax credit entitlement amount in future tax periods?

Answer

Yes.

This ruling applies for the following periods:

1 July 2015 to 30 June 2016

1 July 2016 to 30 June 2017

1 July 2017 to 30 June 2018

The scheme commences on:

1 July 2015.

Relevant facts and circumstances

You are registered for goods and services tax (GST) and fuel tax credits (FTC).

You account for GST and FTC on an accrual basis and report your activity statement quarterly.

As a commercial coach operator, you operate a fleet of passenger coaches as a long distance bus charter service.

Each coach is equipped with air-conditioning, audio-visual equipment, toilet facilities and internal lighting.

The air-conditioning and other ancillary equipment is powered by the vehicles' diesel engine.

The age of your fleet ranges varies however, more than half of the vehicles in the fleet have a build date after 2009.

You are an accredited bus operator with your main operations being daily intercity services, regional and interstate services.

You have conducted a number of tests to determine and verify the fuel usage that is attributable to the basic operation of the vehicle compared to the vehicle's auxiliary equipment i.e. the effects of the air-conditioning (on and off) and the effects of weight (with passengers and without passengers).

Your methodology involved an on-road test in conditions which simulate the actual use of the vehicles in the course of your normal business operation. Data related to the fuel consumption was collected from the vehicle's monitoring system.

Methodology provided.

Background and taxpayers contentions

In support of your application you have provided the following background information:

You have provided the following supporting documentation:

a) Reports for all runs which includes:

1. A daily trip report;

2. A detailed measured fuel report; and

3. A vehicle performance dashboard report

b) Your fleet register which includes registration and all other fleet vehicle details

Relevant legislative provisions

Fuel Tax Act 2006

Reasons for decision

Subsection 41-5(1) of the Fuel Tax Act 2006 (FTA) provides that an entity is entitled to a fuel tax credit for taxable fuel they acquire or manufacture in, or import into, Australia to the extent that they do so for use in carrying on their enterprise.

The Commissioner has considered the implications of the phrase 'to the extent that' for the purposes of entitlement to a fuel tax credit in FTD 2010/1 Fuel tax: is apportionment used when determining total fuel tax credits in calculating the net fuel amount under section 60-5 of the Fuel Tax Act 2006? (FTD 2010/1)

At paragraph 5 of FTD 2010/1 the Commissioner relevantly states:

The use of the phrase 'to the extent that' in the FT Act contemplates apportionment in the case of:


• section 41-5 of the FT Act between a use that entitles you to a fuel tax credit and one that does not, and between uses that give rise to different rates of fuel tax credits, taking into account the operation of Division 41 of the FT Act…

• …

At paragraph 6 and 7 of FTD 2010/1 it is explained that the 'fair and reasonable' principle applies in determining the extent of your fuel tax credit entitlement.

Practice Statement Law Administration PSLA 2010/3 Apportioning fuel for tax credits (PSLA 2010/3) explains how an entity can satisfy the 'fair and reasonable' requirement in determining a fuel tax credit entitlement.

The variables that affect the fuel consumption of the auxiliary equipment or the vehicle mean that the testing methods may vary. Any method may be used provided it results in a fair and reasonable apportionment of the fuel and can be substantiated.

PSLA 2010/3 explains some of the methodologies that may be used for apportioning the fuel used in a vehicle between fuel used to power the vehicle and fuel used to power the auxiliary equipment. Using the data from the vehicle's engine electronic control module download or testing the vehicle's fuel consumption with and without the auxiliary equipment in operation (commonly referred to as 'shadow testing'), are two such methods.

Practice Statement Law Administration (General Administration) PSLA 2013/4 (GA) sets out what percentage we consider is a fair and reasonable apportionment. It goes on to say that an entity may choose any methodology (such as one of the constructive, deductive, estimate or percentage methods listed in the document) that would be considered fair and reasonable for its own circumstances. That would include the type and use of the business 'equipment, the usage variables, the mechanisms measuring the fuel usage and the records substantiation the apportionment'.

The methodology undertaken by you is a form of 'shadow' testing and is based on a vehicle operating under similar conditions but with a couple of variable modifications, namely weight and air-conditioning.

Methodology Overview

The Control Run

The Standard Run

Conclusion

The Commissioner considers that the methodology adopted by you i.e. the circumstances of the use of the vehicle and auxiliary equipment, the variables that affect the fuel consumption and the 'margin of error' implemented, will provide a 'fair and reasonable' apportionment.

Your apportionment methodology is a form of shadow testing in determining the apportionment of the fuel used in your fleet and the auxiliary equipment apportionment percentage you have determined is considered 'fair and reasonable'.

Therefore, this fuel apportionment percentage can be used to all of your fleet vehicles.