ATO Interpretative Decision

ATO ID 2004/63

Excise

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Issue

Is the operation of a drilling rig permanently mounted on a vehicle an 'incidental use', or any other use, of the vehicle that is integral to operating the vehicle as mentioned in paragraph (a) or (b) of subsection 42(2) for the purposes of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The operation of a drilling rig permanently mounted on a vehicle is not an 'incidental use', or any other use, of the vehicle that is integral to operating the vehicle as mentioned in paragraph (a) or (b) of subsection 42(2) for the purposes of the EGCSA.

Facts

The entity operates a water well drilling business using a drilling rig permanently mounted on a truck, with a gross vehicle mass (GVM) over 20 tonnes.

The truck is licensed for on-road use.

The vehicle is not a vehicle for transporting passengers or goods.

The truck engine supplies power to drive the vehicle to the customer site as well as power to operate the hydraulics system drilling the boreholes while the truck is stationary.

Reasons for Decision

Under Part 3 of the EGCSA an entity is, subject to the requirements specified in that part, entitled to an on-road credit in the form of an energy grant in certain circumstances.

Section 42 of the EGCSA details the circumstances when a client will be entitled to an on-road credit for the use of diesel or alternative fuel in a registered vehicle that has a GVM of 20 tonnes or more.

Subsection 42(1) of the EGCSA provides that a claimant is entitled to an on-road credit if they purchase diesel or alternative fuel for:

(a)

use in a registered vehicle that has a gross vehicle mass of 20 tonnes or more; or

(b)

incidental use in relation to such a vehicle.

However, the extent of entitlement is limited by subsection 42(2) of the EGCSA which separates entitlement based on whether or not the vehicle is a vehicle for transporting passengers or goods.

Paragraph 42(2)(a) of the EGCSA refers to vehicles for transporting passengers or goods. As the truck is not a vehicle for transporting passengers or goods this provisions has no relevance to the claimant's bore-drilling truck.

Paragraph 42(2)(b) of the EGCSA provides that where a vehicle is not a vehicle for transporting passengers or goods, entitlement only extends to:

the movement of the vehicle by road to a place where it is to operate, or from a place where it has operated and.

However, regardless of whether a vehicle is a vehicle for transporting passengers or goods, paragraph 42(2)(c) of the EGCSA provides that entitlement extends to incidental use, or any other use, of the vehicle that is integral to operating the vehicle as mentioned in paragraphs 42(2)(a) or 42(2)(b).

Therefore, in order to meet the requirements of section 42 of the EGCSA, the operation of a drilling rig permanently mounted on a vehicle must be:

•

an incidental use of the vehicle; or

•

any other use of the vehicle

that is integral to operating the vehicle as mentioned in paragraph 42(2)(a) or 42(2)(b) of the EGCSA.

Each test will be considered in turn.

Is the operation of a drilling rig permanently mounted on a vehicle an 'incidental use' of the vehicle?

'Incidental use' in relation to a vehicle is defined in section 8 of the EGCSA which states:

Each of the following, whether or not it takes place on a road, is an incidental use in relation to a vehicle:

(a)

powering the vehicle, or auxiliary equipment in or on the vehicle, while:

(i)

goods to be transported in or on the vehicle are loaded or goods that have been so transported are unloaded; or

(ii)

passengers who are to be transported in or on the vehicle board or passengers who have been so transported alight; or

(iii)

the vehicle is moved to a place where anything in subparagraph (i) or (ii) is to happen or from a place where such thing has happened;

(b)

powering the vehicle, or auxiliary equipment in or on the vehicle in order to maintain the quality of goods transported, or to be transported, in or on the vehicle;

(c)

powering the vehicle or auxiliary equipment in or the vehicle, in order to clean or otherwise maintain the vehicle or auxiliary equipment in or on the vehicle;

(d)

using the vehicle for training operators of vehicles.

The operation of the drilling rig in drilling wells for water, does not fall within the above definition as:

•

Goods are not being loaded or unloaded, and

•

the vehicle (and equipment on the vehicle) are not being used to maintain the quality of goods on the vehicle, and

•

the vehicle (and equipment on the vehicle) are not being used to clean or otherwise maintain the vehicle, and

•

the vehicle is not being used to train operators of such vehicles.

Therefore the diesel fuel used in drilling wells for water is not an 'incidental use' of that vehicle for the purposes of subsection 42(1) of the EGCSA.

Is the powering of bore-drilling equipment permanently mounted on a vehicle 'any other use' of the vehicle that is integral to operating the vehicle in order to operate the vehicle as mentioned in paragraph 42(2)(a) or 42(2)(b) of the EGCSA?

The powering of equipment on the vehicle is an 'other use' of the vehicle. However, the eligibility of 'any other use' (or incidental use) of a vehicle is dependent upon the use being integral to operating the vehicle as mentioned in paragraph 42(2)(a) or 42(2)(b) of the EGCSA.

As explained above, paragraph 42(2)(a) of the EGCSA is not relevant, as the vehicle is not a vehicle for transporting goods or passengers.

Therefore, the powering of the equipment on the vehicle will only be eligible if it is integral to moving the vehicle to a place where it is to operate, or from a place where it has operated. Clearly, the powering of the equipment does not have the necessary connexion with the movement of the vehicle.

Conclusion

The powering of bore-drilling equipment on the vehicle is neither an incidental use, nor any other use of the vehicle that is integral to operating the vehicle as mentioned in paragraph 42(2)(a) or 42(2)(b) of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 8
   section 42
   subsection 42(1)

Related ATO Interpretative Decisions
ATO ID 2004/64
ATO ID 2004/65
ATO ID 2003/1163

Keywords
EGCS on-road
EGCS on-road diesel fuel
EGCS incidental use

Business Line:  Indirect Tax

Date of publication:  23 January 2004

ISSN: 1445-2782