Edited version of your written advice

Authorisation Number: 1013063664549

Date of advice: 1 August 2016

Ruling

Subject: Fuel Tax Credits - Fuel Used in manufacturing of an Intermediate Product Used in making explosives

Question 1

Are you entitled to claim fuel tax credits (FTCs) under the Fuel Tax Act 2006 in relation to diesel fuel you purchased and used in the production of an intermediate product used in the making of explosives?

Answer

You are entitled to claim FTCs under the Fuel Tax Act 2006 for the duty paid diesel fuel you acquired for use in the manufacture of an intermediate product used in the making of explosives.

Question 2

Does the carbon reduction apply in calculating your FTC amount under the Fuel Tax Act 2006 in relation to the diesel fuel you purchased and used in the production of an intermediate product used in the making of explosives during the 1 July 2012 to 30 June 2014 period?

Answer

The carbon reduction does not apply in calculating the FTCs in relation to the duty paid diesel fuel acquired for use in the manufacture of an intermediate product used in the making of explosives during the 1 July 2012 to 30 June 2014 period.

This ruling applies for the following period:

01 July 2012 to 30 June 2014

The scheme commences on:

01 July 2012

Relevant facts and circumstances

You manufacture an intermediate product used in the making of explosives. Diesel fuel is both an ingredient and the only fuel ingredient. It comprises approximately 8% of the total ingredients used to make this product.

The diesel fuel was purchased by you duty paid.

You use this product to make explosives and sell this product to unrelated entities that also make explosives with this product.

You have been registered for GST from 1 July 2000.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 43-5

Fuel Tax Act 2006 subsection 43-5 (1) - as amended on 1 July.2012 and extant until 1July 2014

Fuel Tax Act 2006 section 43-8 - enacted on 1 July 2012 and repealed from 1 July 2014

Fuel Tax Act 2006 paragraph 43-8 (4) (d) - enacted on 1 July 2012 and repealed from 1 July 2014

Fuel Tax Act 2006 Division 47

Fuel Tax Act 2006 section 110-5

Reasons for Decisions

First Decision

Section 41-5 of the Fuel Tax Act 2006 (the Act) holds an entity registered for GST is entitled to a FTC for the taxable fuel it acquired to the extent done so for use in carrying on its enterprise.

The diesel fuel (diesel) you purchase, upon which duty is payable under either Excise legislation or Customs legislation, meets the definition of a taxable fuel at Section 110-5 of the Act. Fuel Tax Ruling (FTR) 2007/1 at paragraph 19 recognises 'acquire' has its ordinary meaning of 'to get as one's own' and at paragraph 21 holds an entity 'acquires' fuel that it purchases. Therefore for the purposes of the Act you when purchasing diesel acquired a taxable fuel.

FTR 2009/1 at paragraph 1 holds 'use means to '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.' Certain non-fuel ingredients and the diesel, about 8% of the total, undergo homogenisation and heating to form an intermediate product used in the making of explosives. Your product, immiscible and viscous in nature, is not a fuel and the diesel used to form this no longer exists as a fuel. Hence the diesel so used is expended and as it no longer exists as a fuel is used for the purposes of section 41-5.

FTR 2009/1 at paragraph 2 holds 'fuel that is acquired….would be used in carrying on your enterprise if, in the course of carrying on that enterprise … it is used in the production of another thing that no longer constitutes a fuel.' The enterprise you are carrying on with this taxable fuel is to manufacture an intermediate product used in the making of explosives, a product that no longer constitutes a fuel. Hence the diesel has been used in the carrying on your enterprise for the purposes of section 41-5.

You therefore in acquiring the diesel, a taxable fuel, for use in the manufacture of this product have done so in carrying on your enterprise and are entitled under the Act to a FTC upon that fuel to the extent that diesel is so used as no other provisions remove that entitlement.

That entitlement is subject to the FTCs being applied for within the requisite time frame. You having been registered for GST from 1 July 2000 satisfy the element at Section 41-5 of the Act that an entity registered for GST is entitled to a FTC. Under Division 47 of the Act you must generally claim within four years that starts from the day after you were required to lodge the BAS for the tax period in which the fuel was acquired.

Second Decision

The following discussion is specific to the carbon measures that were, regarding the Fuel Tax Act 2006 (the Act), enacted on 1 July 2012 and repealed from 1 July 2014.

For this period the FTC upon diesel fuel (diesel) when acquired may be subject to a carbon reduction amount worked out under section 43-8 of the Act. Under section 43-5 of the Act the carbon reduction amount is deducted from the effective fuel tax amount, which is the fuel tax amount less any grant or subsidy that was payable. Hence under the carbon measure provisions in subsection 43-5 (1) FTCs are calculated as follows:

FTC = Amount of effective fuel tax - Amount of carbon reduction

The detailed reasoning used to answer Question 1 regarding what 'acquire' and 'use' mean also applies to the same terms in paragraph 43-8 (4) (d) of the Act. Under that provision no carbon reduction applies to the extent you '…acquire… the fuel for use otherwise than by combustion of the fuel'. You acquired the diesel for mixing with non-fuel ingredients. Those mixtures are then homogenised and heated to manufacture a product that no longer constitutes a fuel and the diesel no longer exists as a fuel. Therefore as that diesel was for use otherwise than by combustion the amount of carbon reduction to be applied in calculating your FTC is nil.