Fuel Tax Ruling

FTR 2006/4

Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into Australia for use in carrying on an enterprise involving 'fishing operations' as defined in section 34 of the Energy Grants (Credit) Scheme Act 2003

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What this Ruling is about

1. This Ruling explains an entity's^[1] entitlement to a fuel tax credit under the Fuel Tax Act 2006 (FT Act) for taxable fuel it acquires or manufactures in, or imports into, Australia to the extent that it does so for use in carrying on an enterprise which involves activities that are within the meaning of 'fishing operations' in section 34 of the Energy Grants (Credits) Scheme Act 2003 (Energy Grants Act).

2. The Ruling also explains:

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the fuel tax credit system^[2] under the FT Act, and the relevant transitional provisions; and

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the meaning of 'fishing operations' and related terms in section 34 of the Energy Grants Act. In particular, the Ruling discusses:

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the definition of 'fish' in subsection 34(2);

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'farming of fish' in paragraph 34(1)(b);

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'construction of ponds, tanks or other structures to contain fish' in paragraph 34(1)(c);

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'pearling operations' in paragraph 34(1)(e); and

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the operation of the exclusions contained in paragraphs 34(1)(h) and 34(1)(i).

3. Unless otherwise stated, all legislative references in this Ruling are to the Energy Grants Act, and all references to the Energy Grants regulations are to the Energy Grants (Credits) Scheme Regulations 2003.

4. This Ruling does not deal with your entitlement to a fuel tax credit if you acquire, manufacture in, or import into, Australia taxable fuel for use in generating electricity for domestic use. Nor does the Ruling deal with entitlement to a fuel tax credit if you acquire, manufacture in, or import into, Australia taxable fuel for use in a vehicle with a gross vehicle mass of more than 4.5 tonnes travelling on a public road.

Definitions

5. In this Ruling, unless otherwise stated:

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a reference to:

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fuel or diesel fuel is a reference to off-road diesel fuel as defined in section 4;

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taxable fuel is a reference to taxable fuel as defined in section 110-5 of the FT Act;

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alternative fuel is a reference to on-road alternative fuel as defined in section 4;

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the diesel fuel rebate scheme is a reference to the diesel fuel rebate scheme as provided for in section 164 of the Customs Act 1901 and section 78A of the Excise Act 1901;

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an eligible activity or eligible activities is a reference to a use that qualifies for the purposes of the Energy Grants Act;

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'fishing operations' is a reference to the activities within the meaning of 'fishing operations' in section 34 of the Energy Grants Act;

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'GST' is a reference to the goods and services tax;

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GST Act is a reference to the A New Tax System (Goods and Services Tax) Act 1999;

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'you' in relation to provisions of the FT Act and the Fuel Tax (Consequential and Transitional Provisions) Act 2006 applies to entities generally, unless its application is expressly limited;^[3]

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The Transitional Act is a reference to the Fuel Tax (Consequential and Transitional Provisions) Act 2006;

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the transitional provisions is a reference to the relevant provisions in Schedule 3 of the Transitional Act; and

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acquire taxable fuel or taxable fuel acquired is a reference to 'taxable fuel that you acquire or manufacture in, or import into, Australia';

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it is assumed:

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that if you are entitled to a fuel tax credit you meet the requirements that entitle you to the credit and are not disentitled by the disentitlement rules^[4] in the FT Act;

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during the period 1 July 2006 to 30 June 2009, if you claimed more than $3 million each financial year in fuel tax credits you met the requirements of the Greenhouse Challenge Plus Programme or another programme determined, by legislative instrument, by the Environment Minister for the purposes of section 45-5 (as at 30 June 2009) of the FT Act^[4A]; and

•

that if an entity is carrying on an enterprise of fishing operations it is carrying on an enterprise in the form of a business^[5] which involves the activities that are within the meaning of fishing operations in section 34.

6. In this Ruling, a reference to you being entitled to a fuel tax credit if you acquire taxable fuel for use in an activity that falls within the meaning of 'fishing operations' in section 34 of the Energy Grants Act, assumes that the requirements of either item 10 or 11 of Schedule 3 of the Transitional Act (where relevant) are met.

Class of entities

7. This Ruling applies to the class of entities who acquire or manufacture in, or import into, Australia, taxable fuel for use in carrying on an enterprise which involves activities that are within the meaning of 'fishing operations' in section 34 of the Energy Grants Act.

How to read this Ruling

8. The Ruling section sets out the Commissioner's view on entitlement to a fuel tax credit for taxable fuel acquired or manufactured in, or imported into, Australia for use in carrying on an enterprise that involves activities within the meaning of 'fishing operations'.

9. For a more detailed analysis and explanation of the issues covered in the Rulings section, you should refer to the Explanation section in Appendix 1 of this Ruling.

10. This is followed by the Background section in Appendix 2 of this Ruling which provides an overview of the fuel tax credit system. Appendix 3 of this Ruling sets out a comparison table of the energy grants scheme and fuel tax credit system.

Ruling

General entitlement rules for a fuel tax credit

11. You are entitled to a fuel tax credit for taxable fuel that you acquire or manufacture in, or import into, Australia^[6] to the extent that you do so for use in carrying on your enterprise.^[7]

12. However, you are only entitled to the fuel tax credit if, at the time you acquire the taxable fuel, you are registered for GST, or required to be registered for GST.^[8] This is regardless of your turnover.^[9]

13. The fuel tax credit to which you are entitled is taken into account in calculating your net fuel amount. The net fuel amount must be calculated for each tax period. If your net fuel amount is a positive figure, you must pay this amount to the Commissioner. If the net fuel amount is a negative figure, the Commissioner must pay this amount to you.

14. During the period 1 July 2006 to 30 June 2009 your net fuel amounts for tax periods ending in a financial year were not to take into account more than $3 million of fuel tax credits unless you were a member of the Greenhouse Challenge Plus Programme (GCPP) or another programme determined by the Minister for the Environment, Heritage and the Arts.^[10] If you became a member of the GCPP within four years of the end of the financial year that you were unable to take such fuel tax credits into account, you could claim the entitlements as a decreasing fuel tax adjustment in the tax period you became a member of the GCPP.^[10A]

14A. Division 45 of the FT Act has been repealed from 1 July 2009. Consequently, you are no longer required to be a member of the GCPP in order to take into account more than $3 million in fuel tax credits in your net fuel amount for tax periods ending in a financial year.

14B. In addition, if you were not a member of the GCPP on 30 June 2009 then you are deemed to have been a member of the GCPP on that date.^[10B] This means that you can take into account fuel tax credits in excess of $3 million in your net fuel amount for any financial year between 1 July 2006 and 30 June 2009.^[10C] These credits are claimed as a decreasing fuel tax adjustment. The decreasing fuel tax adjustment is attributable to the tax period ending 30 June 2009. You will have four years from the end of that tax period to claim the entitlement.^[10D]

15. Taxable fuel means fuel on which customs or excise duty is payable.^[11]

16. You must be 'carrying on an enterprise' within the meaning of section 9-20 of the GST Act to be entitled to a fuel tax credit. The expression 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise.^[12]

17. The words 'to the extent that' in subsection 41-5(1) of the FT Act allows for apportionment between a use that entitles you to a fuel tax credit and one that does not. You can use any fair and reasonable basis for working out the amount of taxable fuel in respect of which you are entitled to a fuel tax credit.^[13]

18. The Commissioner's view is that the 'fair and reasonable' principle also applies in determining the extent of your entitlement to a fuel tax credit if the fuel is acquired for a number of uses, some of which qualify for a fuel tax credit and some of which do not.

19. The apportionment method you choose needs to:

•

be fair and reasonable;

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reflect the planned use of the taxable fuel if you are claiming a fuel tax credit on the basis of intended uses some of which qualify for the credit; and

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be appropriately documented in your individual circumstances.^[14]

Fuel tax credits arising between 1 July 2006 and 30 June 2008

20. Under the transitional provisions, if you acquire taxable fuel (namely diesel fuel) between 1 July 2006 and 30 June 2008 for use in carrying on your enterprise, you are entitled to a fuel tax credit under section 41-5 of the FT Act if you would have been entitled to an off-road credit in respect of the fuel.^[15]

21. In determining whether you would have been entitled to an off-road credit in respect of the fuel, it is assumed that:

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the references to 'purchase or import into Australia' in the Energy Grants Act were instead references to 'acquire or manufacture in, or import into, Australia'; and

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you had disregarded subsection 51(2), section 52 (registration requirements) and section 55A.^[16]

22. Under subsection 65-5(1) of the FT Act, your fuel tax credit is attributable to the same tax period as your input tax credit for the creditable acquisition of the taxable fuel under the GST Act, or the same tax period that an input tax credit would have been attributable under the GST Act if the taxable fuel had been a creditable acquisition or a creditable importation.^[17]

23. However, under item 12A of the Transitional Act, you may elect, before 31 December 2006, to receive early payments of fuel tax credits to which you are entitled for taxable fuel acquired between 1 July 2006 and 30 June 2008 (inclusive). If you receive an early payment of your fuel tax credit under these rules, you have an increasing fuel tax adjustment.

24. If you account on a cash basis and you provide part of the consideration for the taxable fuel in a tax period, your increasing fuel tax adjustment for an early payment of your fuel tax credit is attributable to that tax period but only to the extent that you provide the consideration in that tax period. In other cases, the increasing fuel tax adjustment is attributed to the earliest tax period to which your fuel tax credit can be attributed. Paragraphs 87 to 92 of this Ruling provide a detailed explanation of the early payments system.

Example 1 - early payment of fuel tax credits

25. Rudi carries on a business as a fisher. On 1 September 2006, Rudi elects to receive early payments of fuel tax credits. Prior to 1 July 2006, Rudi was entitled to energy grants for diesel fuel purchased for use in fishing operations. Rudi is a quarterly BAS lodger who accounts for GST on a cash basis.

26. On 12 October 2006, Rudi purchases and pays for diesel fuel for use in his fishing operations. Rudi claims an early payment of $1,000 in respect of the taxable fuel he has acquired. The early payment is made to him on 26 October 2006.

27. In his BAS for the quarterly tax period ending 31 December 2006, Rudi reports a fuel tax credit of a $1,000. Rudi must also report an increasing fuel tax adjustment of $1,000 for this tax period.

28. For the tax period ending 31 December 2006, Rudi has a net fuel amount of nil as his increasing fuel tax adjustment is equal to the amount of his fuel tax credit.

Example 2 - attribution and the early payment of fuel tax credits

29. Further to Example 1, Rudi acquires another quantity of diesel fuel for use in fishing operations on 11 December 2006. Rudi pays in full for the fuel on 3 January 2007. However, Rudi does not acquire any fuel from 1 January 2007 to 31 March 2007(inclusive).

30. Rudi claims an early payment of another $1,000. The early payment is made to him on 22 December 2006. Rudi receives the early payment in the tax period ending 31 December 2006. However, as he paid for the fuel on 3 January 2007, the increasing fuel tax adjustment for the amount of the early payment is attributed to the tax period ending 31 March 2007 and not to the tax period ending 31 December 2006.

31. For the tax period ending 31 March 2007, Rudi has a net fuel amount of nil as his increasing fuel tax adjustment is equal to the amount of his fuel tax credit.

Fuel tax credits arising between 1 July 2008 and 30 June 2012

32. Under the transitional provisions, if you acquire taxable fuel between 1 July 2008 and 30 June 2012 for use in carrying on your enterprise, you are entitled to a fuel tax credit under section 41-5 of the FT Act if you would have been entitled to an off-road credit in respect of the taxable fuel.^[18]

33. In determining whether you would have been entitled to an off-road credit in respect of the taxable fuel, it is assumed that:

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the references to 'purchase or import into Australia' in the Energy Grants Act were instead references to 'acquire or manufacture in, or import into, Australia';

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you had disregarded subsection 51(2), section 52 (registration requirements) and section 55A; and

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the references to 'off-road diesel fuel' were instead references to the fuel.^[19]

34. From 1 July 2008, eligibility for a fuel tax credit extends to petrol used in off-road qualifying activities that were previously eligible for an off-road credit under section 53 of the Energy Grants Act.

35. From 1 July 2008, you are also entitled to a fuel tax credit for taxable fuel acquired even if you are not entitled to an off-road credit for a qualifying use under section 53 of the Energy Grants Act. However, the amount of the credit is half the amount calculated under Division 43 of the FT Act (half credit).^[20]

36. From 1 July 2012, irrespective of whether or not the activity was a qualifying use under section 53, you are entitled to the full amount of the fuel tax credit for taxable fuel acquired, manufactured in or imported into, Australia for use in carrying on your enterprise.

37. From 1 December 2011, coinciding with bringing alternative fuels^[21] into the fuel tax system, an entity acquiring, manufacturing in, or importing into, Australia, alternative fuel^[22] is entitled to a fuel tax credit for the fuel.^[23] This entitlement is to the full amount of that credit.

Entitlement to fuel tax credits for taxable fuel acquired between 1 July 2006 and 30 June 2012 for use 'in fishing operations'

38. If you carry on an enterprise involving fishing operations and you acquire taxable fuel for use in an activity that is within the meaning of 'fishing operations', in paragraphs 34(1)(a) to 34(1)(g) and the activity is not excluded from being a qualifying use by paragraphs 34(1)(h) and 34(1)(i), you are entitled to a fuel tax credit under section 41-5 of the FT Act in respect of diesel fuel that you acquire.

39. For diesel fuel that you acquire between 1 July 2006 and 30 June 2008 (inclusive) for a use in that activity, you are entitled to the full amount of the fuel tax credit.

40. For diesel fuel and petrol that you acquire between 1 July 2008 and 30 June 2012 (inclusive) for a use in that activity, you are entitled to the full amount of the fuel tax credit.

41. For all taxable fuels purchased between 1 July 2008 and 30 June 2012 (inclusive), for use in an activity in fishing operations for which an off-road credit under the energy grants scheme was not previously available, you are entitled to a half credit.

42. If, between 1 December 2011 and 30 June 2012 (inclusive), you acquire, manufacture or import into, Australia alternative fuel for use in fishing operations, that is, in an activity that is within the meaning of 'fishing operations' in paragraphs 34(1)(a) to 34(1)(g) and the activity is not excluded from being a qualifying use by paragraphs 34(1)(h) and 34(1)(i), you are entitled to the full amount of the fuel tax credit under section 41-5 of the FT Act.

The form of the definition of 'fishing operations': means, does not include

43. The use of the expressions 'means' and 'does not include' in the definition of 'fishing operations' in section 34 means that the definition is an exhaustive definition. Activities that are not within any one of paragraphs 34(1)(a) to 34(1)(g) are not activities in fishing operations.

44. The application of the exclusions contained in paragraphs 34(1)(h) and 34(1)(i) means that an activity that is within paragraphs 34(1)(a) to 34(1)(g) is in fishing operations only if it is conducted for the purposes of a business and is not for business purposes connected with recreation, sport or tourism.

The meaning of 'fish'

45. The Commissioner considers that the definition of 'fish' in subsection 34(2) includes all living organisms of the sea, the sea-bed or of freshwater or the bed below freshwater, which can be utilised as a resource. The inclusion of 'any living resources, whether of the sea or sea-bed or of freshwater or the bed below freshwater' in the definition means that both marine animal and plant life are within the meaning of 'fish' for the purposes of the energy grants scheme.

Farming of fish

46. In paragraph 34(1)(b), the phrase 'farming of fish' means the propagating or raising of stocks of fish for the purpose of a business otherwise than for business purposes connected with recreation, sport or tourism.

Construction of ponds, tanks or other structures to contain fish that are to be farmed

47. For the purposes of paragraph 34(1)(c), the construction of 'ponds, tanks or other structures' qualifies as fishing operations only if the construction is of structures to contain fish for the purpose of their farming.

Pearling operations

48. An activity that is undertaken in the taking or farming of pearl oysters may be within paragraph 34(1)(e) as well as one or more of paragraphs 34(1)(a) to 34(1)(d).

49. The Commissioner takes the view that these activities are to be considered for eligibility firstly under paragraph 34(1)(e). If the activity is not an eligible activity under that paragraph, it can be considered for eligibility under any one or more of paragraphs 34(1)(a) to 34(1)(d).

Activities excluded from fishing operations

50. An entity is not entitled to a fuel tax credit if they acquire taxable fuel for use in an activity that is excluded from the definition of 'fishing operations' by paragraphs 34(1)(h) and 34(1)(i).

51. The exclusion contained in paragraph 34(1)(h) means that an activity mentioned in paragraphs 34(1)(a) to 34(1)(g) is in fishing operations only if the activity is conducted or carried out for the purposes of a business.

52. The exclusion contained in paragraph 34(1)(i) means that an activity mentioned in paragraphs 34(1)(a) to 34(1)(g) is not a qualifying use if it is conducted wholly or in part for business purposes connected with recreation, sport or tourism.

53. The Commissioner considers that, the expression in whole or in part, in the exclusion in subsection 34(1), is to be interpreted having regard to the purpose of the provisions of the Energy Grants Act.

54. Under this purposive interpretation approach, where a person conducts activities that are for the purposes of a business as well as for other purposes (for example, private purposes) the Commissioner takes the view that the person conducts separate activities, being those that are for business purposes and those that are not. To the extent to which they are for business purposes they are eligible activities. To the extent to which activities are otherwise than for business purposes, they are separate activities that are excluded from being in fishing operations by paragraph 34(1)(h).

55. The Commissioner takes a similar approach to the exclusion contained in paragraph 34(1)(i). Where a person conducts activities mentioned in paragraphs 34(1)(a) to 34(1)(g) for business purposes not connected with recreation or tourism as well as for business purposes that have that connection, the person conducts separate activities. To the extent that the activities are not so connected they are eligible activities. To the extent to which the activities are for business purposes connected with recreation, sport or tourism, they are separate activities that are excluded from being in fishing operations by paragraph 34(1)(i).

56. In the context of the exclusion contained in paragraph 34(1)(i), a business purpose is connected with recreation, sport or tourism if there is a substantial and discernible association between the purpose and any one of recreation, sport or tourism.

Example 3 - a fish farming business engaged in the propagation of fish for commercial sale and conducts activities for business purposes connected with recreation, sport or tourism

57. Trout About Pty Ltd (Trout About) operates a trout farm as a business. They propagate and raise trout. Mature trout are processed and sold as fresh or smoked trout. They also sell immature trout as live fingerlings.

58. Trout About also provides, for a set fee, facilities for recreational anglers and tourists to catch trout from the farm dams.

59. Trout About carries on activities on its farm that are partly in carrying on a business of farming of fish and partly for business purposes connected with recreation and tourism.

60. Trout About needs to distinguish between activities conducted in the farming of fish and activities conducted for business purposes connected with recreational fishing and tourism.

61. Trout About was entitled to an off-road credit for diesel fuel that it acquired for use in the activities conducted in the farming of fish. These activities, mentioned in paragraph 34(1)(c) are not excluded from being in fishing operations by paragraph 34(1)(i). As Trout About was entitled to an off-road credit for these activities, Trout About is entitled to a fuel tax credit for diesel fuel that it acquires on or after 1 July 2006 for use in these eligible activities.

62. However, Trout About was not entitled to an off-road credit for diesel fuel acquired for use in providing and maintaining facilities for recreational angling and tourists. These activities are conducted for business purposes connected with recreation or tourism and are excluded from being in fishing operations by paragraph 34(1)(i).

63. Trout About is therefore not entitled to a fuel tax credit for diesel fuel acquired between 1 July 2006 and 30 June 2008 inclusive for use in these activities. However, from 1 July 2008 to 30 June 2012 inclusive, Trout About has an entitlement to 50% of the fuel tax credit for taxable fuel acquired for use in providing and maintaining facilities for recreational angling and tourists.^[24]

Date of effect

64. This Ruling applies from 1 July 2006.

65. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 75 to 77 of Taxation Ruling TR 2006/10 Income tax, fringe benefits tax and product grants and benefits: Public Rulings).

Note: the Addendum to this Ruling that issued on 15 August 2007 explains our view of the law as it applies from 1 July 2007.

Withdrawal

66. This Ruling is withdrawn and ceases to have effect on 1 July 2012. The Ruling continues to apply, in respect of the fuel tax law ruled upon, to all taxpayers within the specified class who acquire, manufacture in, or import into, Australia, taxable fuel before 1 July 2012. Thus, the Ruling continues to apply to those taxpayers, even following its withdrawal, who acquire taxable fuel prior to the withdrawal of the Ruling (see paragraph 46 of TR 2006/10).

Commissioner of Taxation
4 October 2006

Appendix 1 - Explanation

67. The fuel tax credit system commenced on 1 July 2006. Prior to the commencement of the fuel tax credit system, claims for an energy grant for off-road credits for diesel fuel purchased for the qualifying use of primary production (the definition of which in section 21 includes fishing operations) were made under the energy grants scheme.

General entitlement rules for a fuel tax credit

68. You are entitled to a fuel tax credit^[25] for 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.^[26]

69. However, you are only entitled to the fuel tax credit if, at the time you acquire the taxable fuel, you are registered for GST, or required to be registered for GST.^[27] This is regardless of your turnover.

70. You must be 'carrying on an enterprise' within the meaning of section 9-20 of the GST Act to be able to claim a fuel tax credit. The expression 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise.

71. The expressions 'fuel tax', 'taxable fuel', 'acquire or manufacture in', and for 'use in carrying on your enterprise' are concepts that differ to terms used in the Energy Grants Act.

72. Fuel tax^[28] means duty that is payable on fuel under the Excise Act 1901 or the Customs Act 1901 and the respective Tariff Acts,^[29] other than any duty that is expressed as a percentage of the value of fuel for the purposes of section 9 of the Customs Tariff Act 1995.

73. Taxable fuel means fuel on which customs or excise duty is payable.^[30]

74. You will not be considered to have used the taxable fuel if you sell the taxable fuel to another entity.^[31]

75. You only need to acquire taxable fuel with the intention of using it for an eligible purpose to be entitled to a fuel tax credit. It is not necessary for the taxable fuel to have been actually used by you for an eligible purpose at the time you make the claim for your fuel tax credit. However, if you acquire the taxable fuel with the intention of using it for a particular purpose but subsequently use the taxable fuel for a different purpose and the amount of your fuel tax credit, worked out on the basis of the intended use is different from the amount to which you are actually entitled to worked out on the basis of actual use you will have a fuel tax adjustment.^[32]

76. Under the FT Act, you are required to calculate your net fuel amount^[33] for each tax period.^[34] Your net fuel amount is worked out using the formula^[35] set out in subsection 60-5(1) of the FT Act. The net fuel amount is claimed on your Business Activity Statement (BAS). If the net fuel amount is positive, you must pay that amount to the Commissioner. If the net fuel amount is negative, the Commissioner must pay that amount to you. The attribution rules in Division 65 of the FT Act determine the tax period to which your fuel tax credit is attributed.^[36]

77. During the period 1 July 2006 to 30 June 2009 your net fuel amounts for tax periods ending in a financial year were not to take into account more than $3 million of fuel tax credits unless you were a member of the Greenhouse Challenge Plus Programme (GCPP) or another programme determined by the Minister for the Environment, Heritage and the Arts.^[37] If you became a member of the GCPP within four years of the end of the financial year that you were unable to take such fuel tax credits into account, you could claim the entitlements as a decreasing fuel tax adjustment in the tax period you became a member of the GCPP.^[37A]

77A. Division 45 of the FT Act has been repealed from 1 July 2009. Consequently, you are no longer required to be a member of the GCPP in order to take into account more than $3 million in fuel tax credits in your net fuel amount for tax periods ending in a financial year.

77B. In addition, if you were not a member of the GCPP on 30 June 2009 then you are deemed to have been a member of the GCPP on that date.^[37B] This means that you can take into account fuel tax credits in excess of $3 million in your net fuel amount for any financial year between 1 July 2006 and 30 June 2009.^[37C] These credits are claimed as a decreasing fuel tax adjustment. The decreasing fuel tax adjustment is attributable to the tax period ending 30 June 2009. You will have four years from the end of that tax period to claim the entitlement.^[37D]

General principles of apportionment

78. The words 'to the extent that'^[38] in subsection 41-5(1) of the FT Act allows for apportionment between a use that qualifies and one that does not. You can use any reasonable basis for apportionment to work out your entitlement to a fuel tax credit if you acquire taxable fuel that you use for qualifying and non-qualifying uses.

79. An apportionment can be made on the basis of an intended use even if precise quantification cannot be made at the time that the taxable fuel is acquired.

80. In Collector of Customs v. Pozzolanic Enterprises Pty Limited,^[39] in relation to the facts of that case, the Court stated:

The fact that only a proportion of the fuel so purchased was intended for that use and the fact that it might not be precisely quantified at the point of sale does not take the purchase outside the rebate provisions. So long as there is some means of establishing that a proportion of the fuel is to be used for an exempt purpose, the precise quantification can await the actual use.^[40]

81. If you acquire taxable fuel partly for use in carrying on your enterprise of fishing operations, apportionment of the fuel tax credit referable to that acquisition is required. In practice, this will usually involve an initial decision about whether the acquisition of the fuel is 'solely' for a particular purpose (in which case apportionment will not be required).

82. The principles to be applied in identifying situations where apportionment is appropriate in an income tax context, and the method to be employed where apportionment is required, were considered by the High Court in Ronpibon Tin NL v. FC of T.^[41] In that case, the High Court considered what part of management and administrative expenses incurred by a taxpayer (whose principal business activity had been interrupted by World War II), were referable to gaining or producing assessable income. The High Court considered both the allocation of distinct expenditure to specific activities, and also apportionment, and said:

In applying the foregoing test or standard separate and distinct items of expenditure should be dealt with specifically. To begin with there are the payments by Ronpibon Tin No Liability to the dependants of members of that company's Eastern staff. ...from the point of view of the income-tax law they could not be regarded as business expenditure...

In the next place the cost incurred by the same company in cables and other communications with reference to the buffer stock scheme cannot be deducted. ... Sufficient details do not appear to say what other distinct and severable items are wholly incapable of reference to the gaining of assessable income.

The charges for management and the directors' fees are entire sums which probably cannot be dissected. But the provision contained in s.51(1) [of the ITAA 1936], as has already been said, contemplates apportionment. The question what expenditure is incurred in gaining or producing assessable income is reduced to a question of fact when once the legal standard or criterion is ascertained and understood. This is particularly true when the problem is to apportion outgoings which have a double aspect, outgoings that are in part attributable to the gaining of assessable income and in part to some other end or activity. It is perhaps desirable to remark that there are at least two kinds of items of expenditure that require apportionment. One kind consists in undivided items of expenditure in respect of things or services of which distinct and severable parts are devoted to gaining or producing assessable income and distinct and severable parts to some other cause. In such cases it may be possible to divide the expenditure in accordance with the applications which have been made of the things or services. The other kind of apportionable items consists in those involving a single outlay or charge which serves both objects indifferently. Of this directors' fees may be an example. With the latter kind there must be some fair and reasonable assessment of the extent of the relation of the outlay to assessable income. It is an indiscriminate sum apportionable, but hardly capable of arithmetical or rateable division because it is common to both objects. ^[42]

83. The High Court therefore emphasised the necessity of considering the facts of individual cases. Where items of expenditure ('acquire, manufacture in or import into, Australia' in the context of the FT Act) are not referable to a particular object, then apportionment is required using a method which results in a fair and reasonable reflection of the relation of the expenditure to assessable income.

84. Following the principles set out by the High Court, the method you choose to apportion the taxable fuel that you acquire between a qualifying use and a non-qualifying use needs to:

•

be fair and reasonable;

•

reflect the planned use of the taxable fuel if you are claiming on the basis of intended use; and

•

be appropriately documented in your individual circumstances.

Fuel tax credits arising between 1 July 2006 and 30 June 2008

85. Under the transitional provisions, if you acquire taxable fuel, (namely diesel fuel), between 1 July 2006 and 30 June 2008 (inclusive) for use in carrying on your enterprise, you are entitled to a fuel tax credit under section 41-5 of the FT Act if you would have been entitled to an off-road credit under the energy grants scheme in respect of the fuel.^[43]

86. In determining whether or not you would have been entitled to an off-road credit in respect of the fuel, it is assumed that:

•

the references to 'purchase or import into Australia' in the Energy Grants Act were instead references to 'acquire or manufacture in, or import into, Australia'; and

•

you had disregarded subsection 51(2), section 52 (registration requirements) and section 55A.^[44]

Early payments of fuel tax credits

87. Under the transitional provisions, you may elect to receive an early payment of fuel tax credit for taxable fuel acquired between 1 July 2006 and 30 June 2008.^[45]

88. The Commissioner must make an early payment^[46] to you, if:

•

you elect before 31 December 2006 (in the approved form) to receive early payments of the fuel tax credit;

•

you were previously entitled an energy grant under the Energy Grants Act;

•

you acquire taxable fuel between 1 July 2006 and 30 June 2008 (inclusive);

•

you are entitled to a fuel tax credit under section 41-5 of the FT Act as affected by the Transitional Act;

•

the fuel tax credit or part of the fuel tax credit is attributable to:

•

if you account for GST on a cash basis - the tax period in which the claim for the early payment is made or a later tax period;^[47]

•

if you do not account for the GST on a cash basis - the tax period in which the claim for early payment is made;^[48] and

•

you have not previously received an early payment of the fuel tax credit for the taxable fuel.^[49]

89. The amount of the early payment is the amount of the fuel tax credit to which you are entitled.^[50]

90. If you:

•

receive an early payment;

•

account on a cash basis; and

•

in a tax period provide part of the consideration for the taxable fuel,

you have an increasing fuel tax adjustment for the amount of the early payment, but only to the extent that you provide the consideration in that tax period. The increasing fuel tax adjustment is attributable to that tax period.^[51]

91. If you:

•

receive an early payment; and

•

account on a non-cash basis,

you have an increasing fuel tax adjustment for the amount of the early payment. The increasing fuel tax adjustment is attributable to the earliest tax period to which the credit can be attributed.^[52]

92. If you have elected to receive early payments you are not obliged to claim all your fuel tax credits as an early payment. Fuel tax credits not claimed as any early payment can be claimed on the BAS in the relevant tax period.

Fuel tax credits arising between 1 July 2008 and 30 June 2012

93. Under the transitional provisions, if you acquire taxable fuel between 1 July 2008 and 30 June 2012 (inclusive) for use in carrying on your enterprise, you are entitled to a fuel tax credit under section 41-5 of the FT Act if you would have been entitled to an off-road credit for a qualifying use under section 53 in respect of the taxable fuel.^[53]

94. From 1 July 2008, eligibility for a fuel tax credit also extends to petrol used in off-road qualifying activities that were previously eligible for an off-road credit under the Energy Grants Act.

95. In determining whether or not you would have been entitled to an off-road credit in respect of the taxable fuel, it is assumed that:

•

the references to 'purchase or import into Australia' in the Energy Grants Act were instead references to 'acquire or manufacture in, or import into, Australia' and references to 'off-road diesel fuel' were instead references to taxable fuel;

•

you had disregarded subsection 51(2), section 52 (registration requirements) and section 55A; and

•

the references to 'off-road diesel fuel' were instead references to the fuel.^[54]

96. From 1 July 2008, under the transitional provisions, if you are not entitled to an off-road credit for a qualifying use under section 53, you are entitled to a fuel tax credit for taxable fuel (includes diesel and petrol) under section 41-5 of the FT Act. However, your entitlement is limited to a half credit.^[55]

97. From 1 July 2012, irrespective of whether or not the activity was a qualifying use under the Energy Grants Act, you will be entitled to the full amount of the fuel tax credit for taxable fuel acquired, manufactured in or imported into, Australia for use in carrying on your enterprise.

98. From 1 December 2011, coinciding with bringing alternative fuels^[56] into the fuel tax system, if you acquire, manufacture in, or import into Australia alternative fuel^[57] for use that is off-road you are eligible for a fuel tax credit.^[58]

Entitlement to fuel tax credits for taxable fuel acquired between 1 July 2006 and 30 June 2012 for use in 'fishing operations'

99. You are entitled to a fuel tax credit for taxable fuel you acquire for use or used 'in primary production'. Fishing operations is included in the definition of 'primary production' in section 21. The expression 'fishing operations' is defined in subsection 34(1).

100. In the context of the phrase 'in primary production' in subsection 53(2), the preposition 'in' means 'in the course of' or 'in the process or act of'. Therefore, if an activity can be said to have taken place 'in the course of' primary production, whether that primary production is agriculture, fishing operations or forestry, it can be concluded that it takes place 'in' primary production. As 'fishing operations' is included in the definition of primary production, to be entitled for a fuel tax credit under fishing operations, your activities must take place 'in' fishing operations.

101. In Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance),^[59] Nicholson J, stated:

The word 'in' as it appears in para (a) of the definition of 'mining operations' is to be understood in this context as 'inclusion within, or occurrence during the course of...'

102. The Commissioner considers that the following three criteria may be relevant in determining if an activity takes place 'in the course of' fishing operations.^[60] These are:

•

a causal link exists - in other words, a certain activity is functionally integrated with fishing operations, thereby forming an essential part of it;

•

a spatial link exists - meaning that an activity takes place in an area set aside or utilised for fishing operations; and

•

a temporal link exists - the activity takes place in a timely fashion, not prior to, or after the completion of, the fishing operations.

103. The relevance or weighting afforded to these criteria will vary depending on the facts in each case.

104. Accordingly, the meaning of 'in fishing operations' is not restricted to merely the physical acts of fishing. In determining whether an activity takes place 'in the course of' fishing operations, the three criteria above should be applied.

The form of the definition of 'fishing operations': means, does not include

105. The definition of 'fishing operations' in subsection 34(1) consists of two parts:

•

Paragraphs 34(1)(a) to 34(1)(g): 'fishing operations' means ...

•

Paragraphs 34(1)(h) and 34(1)(i): 'fishing operations' does not include ...

106. The use of the form 'means ... does not include', denotes that the definition of 'fishing operations' is exhaustive. Only those activities that fall within any one or more of paragraphs 34(1)(a) to 34(1)(g) and which are not excluded by paragraphs 34(1)(h) or 34(1)(i) are eligible activities under 'fishing operations'.

107. Paragraphs 34(1)(h) and 34(1)(i) serve to further restrict the definition of fishing operations. Regardless of whether or not taxable fuel is acquired for use in an activity described in paragraphs 34(1)(a) to 34(1)(g), you are not entitled to a fuel tax credit if the activity is excluded from being in fishing operations by the operation of paragraph 34(1)(h) or 34(1)(i).

108. The manner in which the definition of fishing operations is structured means that the activities set out in paragraph 34(1)(a) to 34(1)(g) are 'in fishing operations'. However, paragraph 34(1)(h) has the effect of excluding all the activities set out in paragraphs 34(1)(a) to 34(1)(g) from being within the definition of fishing operations unless those activities are carried out for the purposes of a business.

109. Paragraph 34(1)(i) has the effect of excluding any activity referred to in paragraphs 34(1)(a) to 34(1)(g) that is carried out for business purposes connected with recreation, sport or tourism. An activity mentioned in paragraphs 34(1)(a) to 34(1)(g) may be conducted for the purposes of a business (and, therefore, not excluded by paragraph 34(1)(h)), but would be excluded under paragraph 34(1)(i) if it is conducted for business purposes connected with recreation, sport or tourism.

110. An activity does not have to be mentioned in paragraphs 34(1)(h) or 34(1)(i) to be excluded from the definition of 'fishing operations'. These paragraphs serve merely to exclude particular activities from the definition of 'fishing operations', while other activities will be excluded because they do not fall within the meaning of paragraphs 34(1)(a) to 34(1)(g).

111. As no entitlement to an off-road credit exists under the qualifying use of 'fishing operations' for those activities, from 1 July 2006 to 30 June 2008 (inclusive) no entitlement to a fuel tax credit arises for taxable fuel acquired for use in those activities.

112. From 1 July 2008 to 30 June 2012 (inclusive), an entitlement to half credit would arise and from 1 July 2012, an entitlement for the full fuel tax credit would arise for taxable fuel you acquire for use in those activities.

113. The form of the definition of ' fishing operations': means, does not include is substantially the same form of the definition of fishing operations as existed in the diesel fuel rebate scheme. Decisions of the Courts and the AAT in relation to the diesel fuel rebate provisions are, in the Commissioner's view, relevant to the interpretation of section 34.

Status of contractors and subcontractors

114. For the purposes of the energy grants scheme, activity determines eligibility, rather than whether the entity's principal business is fishing operations.^[61]

115. The specific inclusion of contractors and subcontractors in paragraph 34(1)(c) is for clarification and in recognition that the construction of the kind mentioned in the paragraph is often carried out by contractors or subcontractors rather than by the entity who carries on a business of farming of fish. Unlike the other activities listed in subsection 34(1), it would not be immediately evident that a contractor or subcontractor engaged to build a tank or excavate a pond is engaged in an activity that is essential to the carrying on of a business involving the farming of fish. The specific inclusion of the construction by contractors and subcontractors of ponds, tanks or other structures to contain fish that are to be farmed as an eligible activity puts the issue beyond any doubt.

The meaning of 'fish'

116. A central concept of the meaning of 'fishing operations' is the definition of fish.

117. Subsection 34(2) defines 'fish' as meaning:

freshwater or salt-water fish, and includes crustacea, molluscs or any other living resources, whether of the sea or sea-bed or of freshwater or the bed below freshwater.

118. The noun 'fish' is defined by the Macquarie Dictionary^[62] as meaning:

1. any of various cold-blooded, completely aquatic vertebrates, having gills, fins, and typically an elongated body usually covered with scales', or ' 2. any of various other aquatic animals.

119. The definition provided by subsection 34(2), is an exhaustive definition that adopts the ordinary meaning of the noun 'fish' and extends that meaning by including crustacea, molluscs or any other living resources of the sea or sea-bed or of freshwater or the bed below freshwater.

120. The expression 'any other living resources' in the definition of fish extends the ordinary meaning of fish to cover all living things, including animal and plant life, of the sea or sea-bed or of freshwater or the bed below freshwater, that can be utilised as a resource.

121. The Commissioner considers that the ejusdem generis rule of statutory interpretation does not apply to the meaning of the expression 'any other living resources' in the definition of 'fish' in subsection 34(2). The application of this rule would have meant that the words 'any other living resources' are restricted to the same class of things as freshwater or salt-water fish, crustacea and molluscs. These specific things are all descriptions of marine or aquatic animal life. This would have meant that the term 'fish' is limited to animal life and does not include marine plant life.

122. The ejusdem generis rule of statutory interpretation was discussed in Canwan Coals Pty Ltd v. Federal Commissioner of Taxation^[63] in which the Court dealt with the scope of the words 'a railway, road, pipe-line or other facility'. Sheppard J referred to the decision of Latham CJ in R v. Regos^[64] in which, in relation to the ejusdem generis rule, he said:

The rule is that general words may be restricted to the same genus as the specific words that precede them ... Before the rule can be applied it is obviously necessary to identify some genus which comprehends the specific cases for which provision is made. ... where it is sought to apply the rule to a case where an enumeration of specific things is followed by general words it must appear that the specified things 'possess some common and dominant feature' so that they can be described as constituting a genus distinguished by that feature.^[65]

123. The Commissioner considers that the primary and natural significance of the words 'any other living resources whether of the sea or sea-bed or of freshwater or the bed below freshwater' clearly includes marine plants within the scope of that general expression.

124. The construction of the definition of fish using the terms 'means'... and 'includes' indicates that the normal and ordinary meaning of 'fish' is expanded to 'include' other living things that are not normally or ordinarily considered to be fish. Those additional 'included' things are crustacea, molluscs or any other living resources whether of the sea or sea-bed or of freshwater or the bed below freshwater. The use of the word 'any' indicates a legislative intent that the expression 'other living resources' is not to be read restrictively, and that the natural and ordinary meaning of 'fish' is expanded to include living resources both plant and animal.

125. The meaning of 'fish' encompasses a wide range of aquatic organisms, including (but not limited to):

•

all species of bony fish, sharks and rays;

•

octopuses, cuttlefish and squid;

•

lobsters, crabs, prawns, scallops, abalone, mussels, and oysters;

•

sponges, worms and living coral;

•

all fresh-water fish, yabbies and marron;

•

the eggs, spat or spawn, or the body, or part of the body (including the shell) of marine and fresh-water organisms; and

•

seagrasses, kelp and fresh-water aquatic plants.

126. The sea-bed includes intertidal areas that are covered by the sea at high tide.

127. The meaning of fish is not restricted to fish ordinarily used for human consumption. For example, ornamental fish are also included in the definition.

Activities that are 'fishing operations'

128. The Commissioner considers that the meaning of each of the activities mentioned in paragraphs 34(1)(a), 34(1)(d), 34(1)(f) and 34(1)(g) are clear. This Ruling, therefore, does not discuss those paragraphs.

Farming of fish

129. The definition of 'fishing operations' in subsection 34(1) states in part:

The expression fishing operations means:

(b)

the farming of fish

130. The term 'farming of fish' is not defined in the Energy Grants Act. Therefore, the term takes its ordinary meaning.

131. The Macquarie Dictionary^[66] defines 'farming' to mean:

1. the business of operating a farm'. It defines 'farm' to mean ' 1. a tract of land devoted to agriculture; or ' 2. a tract of land or water devoted to some other industry, especially the raising of livestock, fish, etc: a chicken farm; an oyster farm.

132. The Commissioner takes the view that, in the context of the definition of 'fishing operations', farming of fish means the propagating, breeding or raising of stocks of fish for the purpose of a business.

133. The term 'farming of fish' within the definition of fishing operations was introduced in an amendment to the diesel fuel rebate scheme in 1989. The Explanatory Memorandum to that amendment stated:

...paragraph 5(1)(e) provides that outward voyages by dedicated mother ships, gear trials, voyages to and from a port and fish farming i.e. operations pertinent to the operation of fishing as a primary industry, are uses that attract rebate of customs duty under the DFRS.^[67]

134. In Re City of Nunawading and Comptroller General of Customs^[68] the AAT stated:

Clearly, the activities must be for the purposes of a business if they are to be regarded as fishing operations. Apart from this, we do not wish to attempt a comprehensive interpretation of 'fishing operations' but it does seem to us that it is concerned with gathering a product. Broadly speaking, it is concerned with the gathering of pearls or with the gathering fish either by taking them from the water where they have bred naturally or by farming them.^[69]

135. Taxable fuel acquired for use in the farming of fish does not qualify for a fuel tax credit unless the activity is undertaken for the purpose of obtaining primary produce, that is, to obtain fish for sale or trade.

136. Where fish farming for research purposes is undertaken within a business involving the farming of fish to produce fish for sale or trade, an entitlement to a fuel tax credit arises in respect of taxable fuel acquired for use in that research activity. The Commissioner considers that the research activity in this case is an activity conducted 'in the course of' the farming of fish. It is, therefore, 'in' fishing operations.

137. However, no entitlement to a fuel tax credit arises in respect of taxable fuel acquired for use in fish farming undertaken within a research or educational institution, where the purpose of that activity is research or education rather than producing fish for sale or trade. This activity is not within the meaning of 'fishing operations' in subsection 34(1). The research activity in this case is not in 'primary production'.

138. It is a question of fact whether the sale of fish is incidental to research, or a joint objective with research, or whether the research is merely part of the business of farming fish to obtain produce for sale.

139. Farming of fish includes the propagation, raising and harvesting of:

•

fish eggs;

•

spat of oyster or similar shellfish;

•

oysters;

•

prawns, marron or other crustaceans;

•

tuna, kingfish or other edible species; or

•

ornamental fish such as goldfish and carp,

for sale or trade.

140. The Commissioner takes the view that the catching and transporting of live fish (for example, tuna) from the wild for stocking fish farms is an activity that falls within paragraph 34(1)(a). An entitlement to a fuel tax credit arises in respect of taxable fuel acquired for use in carrying on this activity as part of your enterprise.

141. Activities that are considered to be 'farming of fish' include:

•

cleaning, maintenance of, and repairs or modifications to ponds, tanks or other structures that contain fish;

•

pumping and filtering of water; and

•

aeration of ponds, tanks or other structures containing fish.

142. The transportation of personnel, equipment and other materials by vessel to or from fish farms located at sea is an eligible activity under paragraph 34(1)(b) if the personnel, equipment or other materials are for the purposes of carrying out the farming activities.

143. There is no requirement that a fish farm be located in a particular place. It can be located in the sea, a river, a lake, a dam, or comprise artificially constructed ponds, tanks or other structures containing fish.

144. The Commissioner considers that the farming of fish ceases when the fish are finally removed from the seawater or fresh water or the pond, tank or other structures containing fish at the farm for processing or sale. Therefore, further processing of fish^[70] on a fish farm is not 'fishing operations' under paragraph 34(1)(b).

Construction of ponds, tanks or other structures to contain fish that are to be farmed

145. The definition of 'fishing operations' in section 34(1) states in part:

(c)

the construction of ponds, tanks or other structures to contain fish that are to be farmed, where construction is carried out by:

(i)

the person who will do the farming; or

(ii)

a person contracted by that person to undertake the construction; or

(iii)

a subcontractor of a person so contracted

146. The Commissioner takes the view that the words 'other structures to contain fish that are to be farmed' are restricted to the same class of the words as ponds or tanks.^[71] It is considered that these specific words are all descriptions of the types of enclosures excavated or built to keep in fish for the purpose of propagating or rearing of fish. The type of enclosure used is dependent on the type of fish to be farmed, physical factors of the site and size of the operation.

147. Examples of 'other structures to contain fish that are to be farmed' include:

•

sea cage pens for use in finfish (for example, tuna and kingfish) aquaculture;

•

a permanent system of uprights and a net or nets stretched across a river, stream or creek to contain fish;

•

intertidal racks and baskets; and

•

intertidal long-lines and bags.

148. However, the expression 'other structures to contain fish that are to be farmed' does not include structures such as open racks and lines or predator control nets for sharks and seals. These structures are not constructed to contain fish that are to be farmed.

149. Where the farming of fish is to be carried out in ponds, tanks or other structures constructed on land, the construction of 'ponds, tanks or other structures' commences when any vegetation and soil are removed in order to provide a flat bench and root-free site at which:

•

excavation can commence; and/or

•

footings can be prepared,

for the construction of a structure to contain fish.

150. Where structures to contain fish are constructed or pre-fabricated at a site other than the place where the farming of fish is or will be carried on, taxable fuel acquired for use in that construction or pre-fabrication qualifies for a fuel tax credit.

151. The Commissioner takes the view that the term 'construction of ponds, tanks or other structures' does not include the transportation of the constructed structure. Construction ordinarily refers to the activities in building, erecting or putting together of the particular structure. The Commissioner considers the transport of such structures from a site where they are constructed or pre-fabricated to a site where they are to be used for the farming of fish is not eligible activity under fishing operations.

152. The transportation of materials and equipment used in the construction of ponds, tanks or other structures to contain fish to the place where the farming of fish will be carried on, is also not an eligible activity under paragraph 34(1)(c).

Pearling operations

153. The definition of 'fishing operations' in subsection 34(1) states in part:

The expression fishing operations means:

(e)

pearling operations

154. The expression 'pearling operations' is defined in subsection 34(3) to mean:

(a)

the taking of pearl shell; or

(b)

the culture of pearls or pearl shell;

and includes the taking or capturing of trochus, beche-de-mer or green snails.

155. The use of the form 'means ... and includes', denotes that the definition of 'pearling operations' is exhaustive.

156. Pearl oysters are molluscs, and are within the definition of 'fish' in subsection 34(2). Activities undertaken in the taking or farming of pearl oysters, may be activities within fishing operations under paragraphs 34(1)(a) to 34(1)(d). This includes the gathering of pearl shell and the growing and maintaining of pearl oysters. Some of these activities are within the definition of 'pearling operations' in subsection 34(3) and may be eligible activities under paragraph 34(1)(e).

157. An activity undertaken in the course of taking or farming of pearl oysters is to be considered for eligibility, firstly, under the qualifying criteria for pearling operations under paragraph 34(1)(e). If the activity does not qualify as pearling operations under paragraph 34(1)(e), it can be considered for eligibility under paragraphs 34(1)(a) to 34(1)(d).

Activities excluded from 'fishing operations'

158. Certain activities are excluded from the definition of 'fishing operations' by paragraph 34(1)(h) or 34(1)(i).

159. The exclusions are for any activity referred to in paragraphs 34(1)(a) to 34(1)(g) that is conducted in whole or in part:

(a)

otherwise than for the purposes of a business (paragraph 34(1)(h)); or

(b)

for business purposes connected with recreation, sport or tourism (paragraph 34(1)(i)).

In whole or in part

160. The exclusion contained in subsection 34(1) states that fishing operations does not include any activity referred to in any of paragraphs 34(1)(a) to 34(1)(g) conducted, 'in whole or in part' otherwise than for the purposes of a business or for business purposes connected with recreation, sport or tourism.

161. In some instances, an entity that carries on a business that involves activities in fishing operations may conduct some activities that are for the purposes of recreation or involve the provision of facilities for tourists. For example, an entity that carries on a business of farming of fish may permit, for a fee, tourists to visit the farm and, as part of that, allow them to undertake some recreational angling and to take their catch with them.

162. The words 'in whole or in part' in the exclusion in subsection 34(1), if interpreted strictly would mean that an entity would not be entitled to a fuel tax credit for taxable fuel acquired for use in an activity mentioned in any one of paragraph 34(1)(a) to 34(1)(g) if the activity was conducted principally for the purposes of a business but also conducted for business purposes connected with recreation, sport or tourism.

163. The Commissioner considers that, the expression in whole or in part, in the exclusion in subsection 34(1), is to be interpreted having regard to the purpose of the provisions of the Energy Grants Act.

164. Under this purposive interpretation approach, where a person conducts activities that are for the purposes of a business as well as for other purposes (for example, private purposes) the Commissioner takes the view that the person conducts separate activities, being those that are for business purposes and those that are not. To the extent to which they are for business purposes they are eligible activities. To the extent to which activities are otherwise than for business purposes, they are separate activities that are excluded from being in fishing operations by paragraph 34(1)(h).

165. The Commissioner takes a similar approach to the exclusion contained in paragraph 34(1)(i). Where an entity conducts activities mentioned in paragraphs 34(1)(a) to 34(1)(g) for business purposes not connected with recreation or tourism as well as for business purposes that have that connection, the entity conducts separate activities. The entity needs to determine the extent to which the activities have business purposes not connected with recreation, sport or tourism. To the extent that the activities are not so connected, they are eligible activities. To the extent to which the activities are for business purposes connected with recreation, sport or tourism, they are separate activities that are excluded from being in fishing operations by paragraph 34(1)(i).

Activities conducted otherwise than for the purposes of a business

166. The use of the word 'business' denotes a commercial concern carried on with the aim of making a profit.

167. In determining whether a business is carried on, no one factor is conclusive. Each case must turn on its own particular facts and be determined after weighing up of a combination of factors in the context of the facts of each case. Factors that may be taken into account include whether:

•

the activity has a significant commercial purpose or character;

•

the person has more than a mere intention to engage in business;

•

there is an intention to make a profit from the activity or a genuine belief that profit will be made;

•

the activity is planned, organised and carried on in business-like manner;

•

the activity is profitable or is likely to be profitable;

•

the activity is repetitive and regular;

•

the activity is carried on in a manner similar to others who engage in the same trade;

•

the size and scale of the activity; or

•

the activity is better described as a hobby, a form of recreation or a sporting activity.^[72]

168. In some cases, it has been held that an entity's activities do not amount to carrying on a primary production business but are merely preparatory to engaging in such a business. For example, in Dalton v. Deputy Federal Commissioner of Taxation^[73] steps taken by a person to clear weeds and put the land into a state of readiness were held to be no more than preparatory to establishing an orchard. On the other hand, in Ferguson v. Federal Commissioner of Taxation (Ferguson)^[74] it was held that the person's preliminary activities in building up a herd of cattle through a leasing arrangement had sufficient commercial character to amount to a business.

169. In Ferguson, Fisher J said:

It is necessary to give consideration to the essential nature of the activity, and the question whether it has the characteristics of a business is primarily a matter of general impression and degree.^[75]

170. The principles mentioned in these cases are equally relevant to the determination of whether the activities mentioned in paragraphs 34(1)(a) to 34(1)(g) are carried out for the purposes of a business and, therefore, are eligible activities.

Activities conducted for business purposes connected with recreation, sport or tourism

171. The definition of 'fishing operations' in subsection 34(1) provides that the expression fishing operations does not include:

... any activity referred to in any of the preceding paragraphs that is conducted, in whole or in part:

(i)

for business purposes connected with recreation, sport or tourism.

172. Where an activity mentioned in paragraphs 34(1)(a) to 34(1)(g) is conducted wholly for business purposes connected with recreation, sport or tourism, the activity is not in fishing operations for the purposes of the energy grants scheme.

173. The expression 'connected with'^[76] has a wide meaning and refers to any activity that has a real, substantial and discernible association or involvement with something else. In the context of the exclusion contained in paragraph 34(1)(i), a business purpose is connected with recreation, sport or tourism if there is a substantial and discernible association between the purpose and any one of recreation, sport or tourism.

Appendix 2 - Background

Fuel tax credit system

174. The fuel tax credit system commenced on 1 July 2006. The table below depicts how the fuel tax credit available for different fuel uses will be phased in between 1 July 2006 and 1 July 2012 (inclusive).

175. From 1 July 2006, fuel tax credits are claimable by businesses via the BAS. Special transitional arrangements allow certain eligible entities to make a claim for an early payment of fuel tax credits without having to wait for the lodgment of a BAS.^[78]

176. Separate claiming arrangements apply to non-business claimants for the generation of electricity for domestic use.

177. Even though the FT Act is a taxing Act,^[79] many provisions of the fuel tax credit system and the transitional provisions are beneficial in that they confer benefits on entities that acquire taxable fuel for use in carrying on an enterprise. Having regard to this policy intent, a purposive interpretive approach will be taken in the interpretation of these provisions.

Energy grants claimed under the Fuel Tax Act

178. Entitlement to an energy grant for off-road diesel fuel is limited to fuel purchased or imported between 1 July 2003 and 30 June 2006 inclusive.^[80] Entities entitled to an energy grant will have 12 months after that date to claim an energy grant under the Product Grants and Benefits Administration Act 2000 (PGBA Act) if they were entitled to an off-road credit under the Energy Grants Act. This means that the claim must be made before the earlier of 1 July 2007 and the end of three years after the start of the claim period.^[81]

179. Alternatively, a claim for such grants (where off-road diesel fuel is purchased or imported between 1 July 2003 and 30 June 2006) can be made under the FT Act by way of a 'decreasing fuel tax adjustment'.^[82]

180. You are not entitled to an energy grant for an off-road credit for diesel fuel, if you have already given the Commissioner a return for a tax period or a fuel tax return period which takes into account a decreasing fuel tax adjustment that relates to the fuel.^[83]

181. The transitional provisions allow you to claim a 'decreasing fuel tax adjustment' on your BAS if the adjustment is attributable to the tax period or fuel tax return period that you choose that ends before 1 July 2009.^[84] The amount of the adjustment is equal to the amount of off-road credit that you were entitled to under the Energy Grants Act.

182. A 'decreasing fuel tax adjustment' decreases an entity's 'net fuel amount'.^[85] That is, a 'decreasing fuel tax adjustment' increases the amount of fuel tax credit an entity is otherwise entitled to.^[86]

Energy Grants Scheme

183. For the Commissioner's views in relation to the operation of the energy grants credits scheme in general and the off-road credit entitlements for the qualifying use of 'fishing operations' in particular, see Product Grants and Benefits Ruling PGBR 2004/1 Energy Grants: off-road credits for fishing operations.

184. Appendix 3 of this Ruling provides a comparison of the energy grants scheme and the fuel tax credit system.

Appendix 3 - Comparison table

185. The following table is a comparison of the energy grants scheme and the fuel tax credit system. The comparison is only in relation to taxable fuel acquired for use in carrying on an enterprise other than in a vehicle, with a GVM of more than 4.5 tonnes, travelling on a public road.

Appendix 4 - Detailed contents list

186. The following is a detailed contents list for this Ruling:

Not previously issued as a draft

References

ATO references:
NO 2006/3602

Related Rulings/Determinations:

FTD 2006/2
FTD 2006/3
GSTR 2006/3
GSTR 2006/4
MT 2006/1
PGBR 2004/1
PGBR 2005/1
PGBR 2005/2
PGBR 2005/3
TR 97/11
TR 97/11ER
TR 2006/10

Subject References:
acquire
acquire, or manufacture in, or import into, Australia
attribution
apportionment
apportionment of fuel
BAS
business
business activity statement
business purposes
carrying on your enterprise
cash
construction of ponds, tanks and other structures
credit
decreasing fuel tax adjustment
diesel fuel
early payment
election
eligible use
energy grant
Energy Grants Scheme
entitlement
grants
half credit
in
in whole or in part
increasing fuel tax adjustment
farming of fish
fish
fishing operations
fuel tax adjustment
fuel tax credit
fuel tax credit system
net fuel amount
off-road diesel fuel
pearling operations
primary production
qualifying use
recreation, sport or tourism
tax period
taxable fuel
use
use in fishing operations

Legislative References:
ANTS(GST)A 1999
ANTS(GST)A 1999 9-20
ANTS(GST)A 1999 Div 23
ANTS(GST)A 1999 184-1
ANTS(GST)A 1999 195-1
EGCSA 2003
EGCSA 2003 4
EGCSA 2003 21
EGCSA 2003 22
EGCSA 2003 34
EGCSA 2003 34(1)
EGCSA 2003 34(1)(a)
EGCSA 2003 34(1)(b)
EGCSA 2003 34(1)(c)
EGCSA 2003 34(1)(d)
EGCSA 2003 34(1)(e)
EGCSA 2003 34(1)(f)
EGCSA 2003 34(1)(g)
EGCSA 2003 34(1)(h)
EGCSA 2003 34(1)(i)
EGCSA 2003 34(2)
EGCSA 2003 34(3)
EGCSA 2003 34(4)
EGCSA 2003 51(2)
EGCSA 2003 52
EGCSA 2003 53
EGCSA 2003 53(1)
EGCSA 2003 53(2)
EGCSA 2003 53(3)
EGCSA 2003 53(6)
EGCSA 2003 53(7)
EGCSA 2003 55A
EGCS Regulations 2003
FTA 2006
FTA 2006 Subdiv 41-B
FTA 2006 41-5
FTA 2006 41-5(1)
FTA 2006 41-5(2)
FTA 2006 Div 43
FTA 2006 Div 44
FTA 2006 44-5(3)
FTA 2006 Subdiv 45-A
FTA 2006 45-5
FTA 2006 45-5(2)
FTA 2006 Div 60
FTA 2006 60-5
FTA 2006 60-5(1)
FTA 2006 61-15
FTA 2006 61-20
FTA 2006 Div 65
FTA 2006 65-5(1)
FTA 2006 65-5(3)
FTA 2006 65-5(4)
FTA 2006 65-5(5)
FTA 2006 95-5
FTA 2006 110-5
FT (Consequential and Transitional Provisions) Act 2006
FT (Consequential and Transitional Provisions) Act 2006 Sch 3
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 9
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 9(3)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 10
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 10(5)(b)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 11
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 11(5)(b)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 11(6)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 11(7)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(1)(c)(i)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(1)(e)(i)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(1)(e)(ii)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(1)(f)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(2)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(3)(a)
FT (Consequential and Transitional Provisions) Act 2006 Sch 3 12A(3)(b)
PGBA Act 2000
PGBA Act 2000 9
PGBA Act 2000 15(2A)
PGBA Act 2000 15(2)(db)
Customs Act 1901
Customs Act 1901 164
Customs Tariff Act 1995
Customs Tariff Act 1995 9
Excise Act 1901
Excise Act 1901 78A
Excise Tariff Act 1921
TAA 1953 Sch 1 105-55
Tax Laws Amendment (2009 Measures No. 2) Act 2009 Sch 7 16(4)
Tax Laws Amendment (2009 Measures No. 2) Act 2009 Sch 7 16(5)

Case References:
Attorney-General v. Brown
[1920] 1 KB 773

Australian National Railways Commission v. Collector of Customs SA
(1985) 8 FCR 264
(1985) 69 ALR 367
Canwan Coals Pty Ltd v. Federal Commissioner of Taxation
(1974) 4 ALR 223
(1974) 1 NSWLR 728
(1974) 4 ATR 669
74 ATC 4231
Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance)
(1998) 87 FCR 482
(1998) 158 ALR 241
Re City of Nunawading and Comptroller General of Customs No. V93/540 AAT No. 9758
(1994) 36 ALD 628
[1995] AATA 9758
Collector of Customs v. Cliffs Robe River Iron Associates
(1985) 7 FCR 271
(1985) 7 ALN N269a
Collector of Customs v. Pozzolanic Enterprises Pty Limited
(1993) 43 FCR 280
(1993) 115 ALR 1
Collector of Customs v. The Western Australian Government Railways Commission (Westrail)
(1995) 39 ALD 21
Dalton v. Deputy Federal Commissioner of Taxation AAT Case 12,533
(1998) 98 ATC 2025
(1998) 37 ATR 1243
District Council of Coober Pedy and Cowell Electric Supply Company Ltd v. Collector of Customs
(1993) 42 FCR 127
(1993) 17 AAR 369
Ferguson v. Federal Commissioner of Taxation
(1979) 79 ATC 4261
(1979) 9 ATR 873
(1979) 26 ALR 307
Federal Commissioner of Taxation v. Payne
(2001) HCA 3
46 ATR 228
2001 ATC 4027
(2001) 202 CLR 93
(2001) 177 ALR 270
(2001) 75 ALJR 442
Re Latham (Dec)
[1962] Ch 616
R v. Regos and Morgan
(1947) 74 CLR 613
(1947) 21 ALJ 110
Re Wandoo Alliance Pty Ltd v. Chief Executive Officer of Customs
[2001] AATA 801
(2001) 34 AAR 98
Ronpibon Tin NL v. FC of T
(1949) 78 CLR 47

Other References:
Revised Explanatory Memorandum to the Fuel Tax Bill 2006 and Fuel Tax (Consequential and Transitional Provisions) Bill 2006
Explanatory Memorandum to the Customs and Excise Legislation Amendment Bill (No. 3) 1989
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW