Edited version of private advice

Authorisation Number: 1052078048214

Date of advice: 19 January 2023

Ruling

Subject: Fuel tax credits

Question

Have you acquired taxable fuel (fuel), for the purposes of claiming a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 (FTA), for use in carrying on your enterprise?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a contractor providing specialised services (the services) to your clients.

You oversee all field operations including safety and training, field support, mechanical support and innovative solutions.

You purchase taxable fuel directly from fuel suppliers, which is delivered and stored in bulk tanks on client sites.

You supply the fuel for the services and directly control the acquisition, storage, distribution and consumption of all fuel used in performing the services.

The contract provided states you supply equipment, personnel, and fuel required to undertake the Services. In relation to fuel, it states the contractor to supply and on charge to the client.

You are responsible for all costs of fuel loss or evaporation, and do not invoice the client or claim fuel tax credit.

You invoice clients for the services at the end of the month, which includes all costs incurred including fuel at cost.

Relevant legislative provisions

Fuel Tax Act 2006 Section 41-5

Reasons for decision

You are registered for GST and your business involves contracting a service to your clients, which includes supplying materials and equipment including taxable fuel.

Acquire and Use

Section 41-5 of the FTA provides that you are entitled to a fuel tax credit for taxable fuel you acquire to the extent that you do so for use in carrying on your enterprise. You are only entitled to the fuel tax credit if, at the time you acquire taxable fuel, you are registered for GST.

Guidance on the meaning of 'acquire' and 'use' has been provided in the following rulings:

•         Fuel Taxation Ruling FTR 2007/1, Fuel tax: the meaning of 'acquire', 'manufacture' and 'import' in the expression 'taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise' in the Fuel Tax Act 2006 (FTR 2007/1); and

•         Fuel Tax Ruling FTR 2009/1, Fuel tax: entitlement to a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 in a vehicle or equipment hire arrangement (FTR2009/1).

The term 'acquire' is not defined in the FTA, therefore takes its ordinary meaning.

In the context of the FTA, the Commissioner considers that the term 'acquire' has the ordinary meaning of to 'get as one's own'.

To 'get as one's own' requires property in or ownership of the taxable fuel to pass from one entity to another entity, or alternatively, that ownership is conferred because the fuel has been obtained by an entity as its own.

•         You acquire taxable fuel if:

•         you purchase the fuel;

•         the fuel is gifted to you; or

•         you get the fuel as your own by any other means (other than manufacture or import). This necessarily means that you get ownership of, or proprietary rights in respect of, the fuel.

The term 'acquire' is further explained at paragraph 144 of FTR 2007/1. The Commissioner considers that to 'get as one's own', implies getting ownership or proprietary rights in respect of the taxable fuel. This will mean either that property in the taxable fuel passes from one entity to another or that proprietary rights or ownership is conferred by the act of obtaining the taxable fuel by other means. Therefore, the Commissioner takes the view that an entity typically 'acquires' taxable fuel upon a change in ownership of, or a transfer of proprietary rights in, the fuel from one entity to another.

You acquire fuel when you purchase diesel directly from fuel suppliers, for delivery to client sites. You maintain physical control of storage and distribution of fuel to their vehicles, plant and equipment.

As we have determined you have acquired the fuel directly from the fuel suppliers, we must also look at whether there has been a change of ownership of, or transfer of proprietary rights in, the fuel when you contract your services to clients.

Paragraph 168 of FTR 2007/1, relates to contractor arrangements, and provides under a full on/full off arrangement, if a contractor has acquired the taxable fuel they bring with them in their plant or equipment onto the property of the party for whom they are carrying out work, then the contractor will be entitled to a fuel tax credit for the fuel.

Additionally, in FTR 2009/1 the Commissioner explains which entity is entitled to a fuel tax credit under section 41-5 of the FTA in a vehicle or equipment hire arrangement. FTR 2009/1 also sets out the principles which can be used in determining whether fuel has been disposed of by the hire company to the hirer, and consequently acquired by the hirer, and which entity has fuel tax credit entitlements under section 41-5 of the FTA.

The Commissioner states that when determining which entity in a hire arrangement acquires and uses the fuel, it is necessary to take into account the facts and circumstances in each case. The entity which acquires fuel for use (and uses the fuel) in vehicle or equipment hire arrangements in carrying on their enterprise will be entitled to a fuel tax credit under section 41-5, subject to the disentitling provisions.

Example 4 of FTR 2009/1 provides that where a company enters into a contract for the supply of earthmoving services with the hire company supplying equipment with a driver and diesel. This is commonly referred to as a wet hire (of full hire) arrangement. The hire company issues an invoice at a flat rate for the wet hire. As the arrangement was for the supply of services only, the diesel was not considered to be disposed of by the hire company and is entitled to a fuel tax credit.

In determining if there has been a change of ownership of, or a transfer of proprietary rights in, the fuel from one entity to another, we must look at any contractual arrangements in place, and in any absence of this, we look at the intention of the parties involved.

The contract states for you to supply equipment, personnel, and fuel required to undertake the services.

The client is to provide site inductions, water supply and site access. Additionally, in relation to the fuel, it states 'Contractor to supply and on charge to the Client'. The contract also provides the scheduled rates for the service provided,

There are no express terms in the contract suggesting a sale of fuel from you to your clients. You will on charge the cost of the fuel.

You as the contractor is engaged by your clients to provide a service, employing your own equipment, labour and fuel. You have total control of the acquisition, storage and distribution of fuel, and bears any cost for the loss and/or evaporation of fuel. Your clients do not have access to the fuel at any time. Upon completion of the services rendered, you take any residual fuel away with you.

You invoice clients monthly for the service providing a breakdown of all costs directly relating to income and additional items including fuel used.

In determining whether a separate charge, or not for fuel supplied in rendering services, constitutes a sale or disposal of fuel, in Riviera Nautic Pty Ltd and Commissioner of Taxation [2002] AATA 657 (Riviera), the Administrative Appeals Tribunal held that there was no sale of diesel fuel by Riviera (hire company) to its clients based as there was no separate charge for the fuel by Riviera and that the property in the fuel did not pass to the hirers.

Paragraph 114 of FTR 2009/1 says, for the purposes of the FTA, the Commissioner considers that, other than where a flat fee is charged irrespective of the quantity of fuel supplied, the billing method should not dictate whether the hire company has sold the fuel to the hirer.

Your invoicing to clients does itemise each cost of their service, including the fuel consumed, this factor alone should not dictate whether a sale has occurred. You have total control of the acquisition, storage and distribution of the fuel, bear the cost for any loss, and the client has no access or use to the fuel, as such there has been no sale or disposal of fuel by you and property in the fuel does not pass on your clients.

Therefore, you have acquired fuel, for the purposes of claiming a fuel tax credit under section 41-5 of the FTA for use in carrying on your enterprise.