Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 2 Fuel tax credits for businesses and households

Outline of chapter

2.1 This chapter explains the rules that apply to fuel tax credits:

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The basic rules deal with a taxpayer's entitlement to a fuel tax credit, working out the amount of a fuel tax credit and when an increasing or decreasing fuel tax adjustment must be made.

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The special rules deal with the application of the Greenhouse Challenge Plus Programme if a taxpayer claims more than $3 million in fuel tax credits in a financial year, and claiming a fuel tax credit if a taxpayer is a goods and services tax (GST) instalment payer.

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The common rules deal with working out a taxpayer's net fuel amount and the requirement to provide a return for each tax period or fuel tax return period, attribution rules, and rules about the way that the GST rules for particular entities apply under the fuel tax law.

Context of reform

2.2 In the energy white paper, Securing Australia's Energy Future , the Government announced a major programme of reform to modernise and simplify the fuel tax system. The reform programme will commence on 1 July 2006, with the introduction of a single fuel tax credit system to replace the current complex system of fuel tax concessions.

2.3 When fully implemented, the fuel tax credit system will ensure that generally fuel tax is only levied on:

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the business use of fuel in travelling on a public road in motor vehicles with a gross vehicle mass of 4.5 tonnes or less;

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the business use of fuel in motor vehicles with a gross vehicle mass of more than 4.5 tonnes (with the exception of a carve-out intending to preserve previous entitlements for eligible fuel use in vehicles with a gross vehicle mass of 4.5 tonnes) but only to the extent of the road-user charge;

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the private use of fuel in vehicles and in certain off-road applications; and

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aviation fuels (where tax is imposed for cost recovery reasons).

Summary of new law

2.4 These Bills provide fuel tax relief to business and householders and sets up a framework for the taxation of gaseous fuels, both locally produced and imported, from 1 July 2011, when fuel tax begins to be phased in for liquefied petroleum gas, liquefied natural gas, and compressed natural gas.

2.5 The fuel tax credit system will provide fuel tax relief in the form of a fuel tax credit for fuel tax embedded in the price of the fuel. The fuel tax credit will be claimed by business entities on their business activity statement (BAS) and will be offset against an entity's other tax liabilities. Non-business entities will claim fuel tax credits in a form approved by the Commissioner of Taxation (Commissioner).

2.6 Under the fuel tax credit system, all fuels including petrol acquired or manufactured in, or imported into Australia for use other than on a public road for business purposes will become tax-free over time.

2.7 Fuel tax relief for fuel used in road transport is provided by allowing a partial fuel tax credit for all taxable fuels (including petrol) acquired or manufactured in, or imported into Australia for use on a public road for all business purposes in registered vehicles with a gross vehicle mass of more than 4.5 tonnes. The partial credit will be equal to the fuel tax rate minus a road-user charge.

2.8 The fuel tax credit system introduces two measures for addressing the environmental impact of fuel use. These environmental measures are the requirement for large fuel users to be a member of the Greenhouse Challenge Plus Programme and compliance with emissions performance criteria by vehicles using fuel in travelling on a public road.

2.9 Accounting and reporting arrangements for business users under the fuel tax credit system will align, as far as possible, with the existing arrangements under the GST law. Generally, this means that a business taxpayer will:

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have to be registered for the GST to claim a fuel tax credit;

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claim fuel tax credits on the BAS in the same way that they claim GST input tax credits;

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apply the same tax periods for fuel tax credits as they apply for the GST;

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attribute fuel tax credits to the same tax period as the GST input tax credit for the acquisition or importation of the fuel; and

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be subject to special GST rules applying to the way that their business is organised, for the purpose of fuel tax credits.

Detailed explanation of new law

Division 40 - Object of Chapter 3

2.10 The object of the fuel tax credit system is to establish a single system of fuel tax credits to reduce or remove the incidence of fuel tax on business inputs and the household use of fuel in electricity generation and heating. The intention is that fuel tax is effectively only applied to the private use of fuel in motor vehicles and other equipment powered by internal combustion engines and the business use of fuel used on-road in light vehicles. [Section 40-5]

Division 41 - Fuel tax credits for business taxpayers and non-profit bodies

Fuel tax credit for fuel to be used in carrying on an enterprise

2.11 A taxpayer is entitled to claim a fuel tax credit for taxable fuel that they acquire or manufacture in, or import into, Australia that they propose to use in carrying on their enterprise. [Section 41-5]

2.12 A taxpayer, however is only entitled to claim a fuel tax credit if they are registered for the GST. This condition does not apply to a non-profit body for fuel it intends to use in an emergency services vehicle or vessel.

2.13 If the taxpayer does not subsequently use the fuel in carrying on their enterprise, they must make an adjustment to their fuel tax credit. Fuel tax adjustments are discussed in paragraphs 2.89 to 2.97.

Meaning of key terms used in the Bills

Meaning of fuel tax

2.14 'Fuel tax' means duty that is payable on fuel under the Excise Act 1901 or the Customs Act 1901 and the respective Tariff Acts [section 110-5] . Where duty that is otherwise payable on fuel has been remitted, or the duty that has been paid is refunded, the fuel tax payable on the fuel is zero.

2.15 Fuel tax does not include a percentage of duty that is ad valorem duty - that is duty that is expressed as a percentage of the value of the fuel for the purposes of section 9 of the Customs Tariff Act 1995 . [Section 110-5]

Meaning of taxable fuel

2.16 'Taxable fuel' means fuel on which Customs or Excise duty is payable [section 110-5] . This arrangement - taxing and crediting - is necessary to deal with the fact that fuel tax is paid by the manufacturer or importer of the fuel, well before it is used. Therefore, the fuel tax is levied on the assumption that the fuel could be used in a taxable way, and credits are granted to reverse the effect of the tax when it becomes clear that the fuel will be put to a non-taxable use - that is, used by a taxpayer in carrying on their enterprise.

2.17 If a taxpayer acquires fuel through a fuel retailer or fuel distributor they can assume that fuel tax is payable on the fuel as it will have been entered for home consumption. However, if a taxpayer uses fuel in carrying on their enterprise, and it is also fuel that they have manufactured or imported, they will not be entitled to a fuel tax credit unless the fuel has been entered for home consumption.

2.18 Fuel tax will continue to be collected on certain fuels that are subject to Excise or Customs duty but are outside the scope of fuel tax reform. These fuels are specifically excluded from the definition of 'taxable fuel' in section 110-5. There is no entitlement to a fuel tax credit for the use of:

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certain imported and locally produced lubricant oils that are subject to a levy under the Product Stewardship (Oil) Programme. This non-hypothecated levy assists in offsetting the costs of benefits paid to oil recyclers as an incentive to undertake increased recycling of used oil [section 110-5] ; and

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oil extracted in areas under Australian control on which crude oil excise is levied. Crude oil excise is designed to obtain payment in return for the extraction of the community's resources [section 110-5] .

2.19 The definition of 'taxable fuel' in section 110-5 refers to items 15 and 17 of the Schedule to the Excise Tariff Act 1921 . The numbering of these items will change from 1 July 2006 as a result of a review of that Schedule, and it is proposed that the Fuel Tax Bill 2006 will be amended to reflect the new numbering.

Meaning of 'Australia'

2.20 The term 'Australia' has the same meaning in this Bill as it has in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The term excludes any external Territory but includes installations such as oil rigs. [Section 110-5]

2.21 There is no entitlement to a fuel tax credit for fuel acquired or manufactured in, or imported into Australia's external Territories. For example, if a taxpayer uses fuel in carrying on an enterprise in the Territory of the Christmas Islands or the Territory of the Cocos (Keeling) Islands, they will not be entitled to a fuel tax credit. This is because fuel tax is not levied in these Territories.

Enterprises that are carried on outside Australia

2.22 There is an entitlement to a fuel tax credit for fuel that is acquired or manufactured in, or imported into, Australia for use in carrying on an enterprise outside Australia, including outside the 12 mile nautical limit of the Australian Territorial Sea. When a ship departs from an Australian port and makes a voyage which includes passage through international waters before returning to an Australian port, this does not constitute an international voyage for the purposes of the Customs Act 1901 and fuel tax is payable on the fuel acquired or manufactured in, or imported into Australia for use on the journey.

2.23 As an example, some fishing operations are conducted in international waters according to international agreements to which Australia is a party. The Australian Fishing Zone extends to 200 nautical miles from the Australian coastline and includes waters surrounding the external Territories. The Australian Navy also conducts operations outside the 12 mile nautical limit. If voyages do not have a place outside Australia as their destination and are treated as domestic voyages, then fuel tax is payable on the fuel and there is a corresponding entitlement to a fuel tax credit.

Meaning of 'carrying on an enterprise'

2.24 A taxpayer 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.

2.25 In accordance with section 195-1 of the GST Act, carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. 'Enterprise' is defined very broadly in the GST Act. The most common example of an enterprise is a business. A hobby or recreational activity where there is no reasonable expectation of profit or gain is specifically excluded from being an enterprise.

2.26 If a government entity is registered for the GST, the fuel tax law will apply to it in the same way as the fuel tax law applies to an entity that is carrying on an enterprise. [Section 70-30]

Registered for the GST or required to be registered for the GST

2.27 Division 23 of the GST Act provides who must be registered for GST and who may be registered. A taxpayer can only become registered for GST if they are carrying on an enterprise or intend to carry on an enterprise from a particular date.

2.28 Under the GST Act, entities with a low annual turnover ($50,000 or less for a business entity or $100,000 or less for a non-profit body) may choose whether or not to register for the GST. However, a taxpayer is only entitled to a fuel tax credit if they are registered for the GST or required to be registered for the GST. [Subsection 41-5(2 )]

2.29 Under the GST Act, a taxpayer that is not registered for the GST cannot claim input tax credits for the GST they pay on business inputs, including fuel. Under the fuel tax credit system they will also forfeit their entitlement to claim a fuel tax credit if they choose to remain unregistered.

Non-profit bodies that operate an emergency vehicle or vessel

2.30 A non-profit body with an annual turnover of $100,000 or less that purchases fuel for use in an emergency vehicle or vessel, will not be required to register for the GST to claim a fuel tax credit. [Subsection 41-5(3 )]

2.31 A non-profit body includes an entity that is exempt from income tax under the following provisions of the Income Tax Assessment Act 1997 :

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section 50-5 (charity, education, science and religion);

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section 50-10 (community service);

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section 50-15 (employees and employers);

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section 50-40 (primary and secondary resources, and tourism); and

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item 9.1 or 9.2 of section 50-45 (sports, culture and recreation).

2.32 A vehicle or vessel that provides emergency services is a vehicle or vessel that is designed and permanently fitted out and equipped for the purposes of preventing and fighting fires, or emergency response or search and rescue operations. It must have external markings that clearly identify it as an emergency vehicle - for example, a siren, flashing/warning lights or other appropriate marking.

Meaning of the term 'use'

2.33 The term 'use' is intended to take its ordinary meaning and apply in a broad sense, as long as the use of the fuel is within the confines of the conduct of carrying on an enterprise. For example, 'use' will include use of fuel that is acquired or manufactured in, or imported into Australia by a taxpayer, but actually used by a contractor in carrying on the taxpayer's enterprise as long as the taxpayer is not taken to have sold the fuel to the contractor as part of their contract.

2.34 Fuel is 'used' if it ceases to exist after an action to use it, either as a fuel or in the production of another thing. As such, a sale of fuel is not a use of the fuel and a taxpayer will not be considered to have used fuel if they sell the fuel to another entity. For example, an oil company would be entitled to a fuel tax credit for fuel that they acquire or manufacture in, or import into Australia for use in exploration for, or the extraction of a petroleum product. They would not be entitled to a fuel tax credit for the product that they actually extract, refine and sell to a distributor or retail outlet.

2.35 The term 'use' is also intended to cover the blending of fuel with other products to create a fuel blend that no longer constitutes a fuel that can be used as a fuel in an internal combustion engine. Where a fuel blend cannot be used as a fuel in an internal combustion engine, the manufacturer of the blend, and not the end user, is entitled to claim a credit for any fuel tax paid on the constituents of the blend. Some examples of these types of blend are paint and certain solvents, printing inks, cleaning agents, adhesives and the like. For the discussion on fuel blends that can be used as a fuel in an internal combustion engine, refer to paragraphs 1.41 and 1.42.

2.36 In circumstances where it is unclear whether certain blends constitute a fuel that can be used as a fuel in an internal combustion engine, the Commissioner is able to make a determination that blends of fuel and other products do not constitute a fuel. In these circumstances the manufacturer of the fuel blend and not the end user is considered to have used the fuel and is entitled to claim a fuel tax credit for any fuel tax paid on the constituents of the blend. [Section 95-5]

2.37 'Use' will also include the loss of fuel through evaporation and temperature changes in the course of carrying on a taxpayer's enterprise.

Section 41-10 - Fuel tax credit for fuel to be sold or packaged

2.38 Section 41-10 is intended to provide fuel on an effectively fuel tax-free basis for use by private users:

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in home heating [subsection 41-10(1 )];

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for use other than in an internal combustion engine (eg, as a solvent) [subsection 41-10(2 )].

2.39 A fuel tax credit will be provided to the sellers and packagers of these fuels rather than requiring the private users to register to claim the fuel tax credit. It is expected that the fuel tax-free status of these fuels will be reflected in the price of the fuel to the private end user.

2.40 A taxpayer will be entitled to a fuel tax credit if they:

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make a taxable supply of kerosene or heating oil to a private entity, and they have a reasonable belief that the fuel will be used for home heating [subsection 41-10(1 )]; or

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package kerosene, mineral turpentine or white spirit, or prescribed fuels in containers to make a taxable supply of the fuel for use other than in an internal combustion engine. The fuel must be packaged in containers of a size to be prescribed in regulations [subsection 41-10(2 )].

Meaning of taxable supply

2.41 The term 'taxable supply' has the same meaning in the Fuel Tax Bill 2006 as it does in the GST Act. [Section 110-5]

Example 2.1

Tony runs a fuel distribution company. His company makes taxable supplies of heating oil to private residences in the Canberra area. Tony reasonably believes that the heating oil will be used for private purposes because he delivers the fuel into tanks that are attached to the sides of his customer's houses. Tony is entitled to claim a fuel tax credit for the supply of the heating oil because it is reasonable to believe it will be used for domestic heating.

Tony also packages kerosene and mineral turpentine in containers of a prescribed capacity which he sells to hardware stores. These containers of fuel are then sold by the hardware stores to retail customers. Tony is able to claim a fuel tax credit for the fuel that he packages.

No fuel tax credit if another entity was previously entitled to a credit

2.42 The intention of section 41-15 is that only one entity is entitled to a fuel tax credit. A taxpayer is not entitled to a fuel tax credit for taxable fuel if it is reasonable to conclude that another taxpayer was entitled to a fuel tax credit on the same fuel [subsection 41-15(1 )]. This situation arises if a reasonable person in the position of the taxpayer would conclude that another taxpayer was entitled to a fuel tax credit on that fuel.

Example 2.2

Chris acquires kerosene from his local hardware store in containers of capacity less than a size prescribed by the regulations, for use in his business. Chris is not entitled to claim the fuel tax credit for the fuel as the packager would be entitled to claim the credit under section 41-10.

It is reasonable for Chris to conclude that another entity had previously been entitled to a fuel tax credit on the fuel when he acquired it, because it was packaged in a container of capacity less than a prescribed size.

If Chris had acquired the fuel from a distributor in a container larger than the prescribed capacity, it would be reasonable for him to conclude that another entity had not previously been entitled to the fuel tax credit, and he would be entitled to claim a fuel tax credit on the acquisition of the fuel.

2.43 In the situation of an entity providing fuel for use by a contractor or sub-contractor, the contractual terms agreed to by the parties would assist to determine whether a particular supply of fuel constituted a taxable supply in the course of carrying on the entity's business and the reasonableness of a contractor or sub-contractor to conclude that the entity had already claimed a credit with respect to the fuel.

Example 2.3

XL Ltd, a manufacturing company engages Joe, a transport contractor to transport goods it manufactures from its factory to its distributor. Joe's contract requires XL Ltd to provide him with diesel fuel for a stated price. XL Ltd cannot claim the fuel tax credit as they have made a taxable supply of the diesel fuel to Joe and the fuel is not used in its enterprise. If XL Ltd had claimed a fuel tax credit as it purchased the fuel with the intention at using it in its enterprise, then it would need to make an increasing fuel tax credit adjustment. As the contract clearly provides for the sale of the fuel, Joe can claim the fuel tax credit.

Example 2.4

Deep Mines Ltd (Deep Mines) engages DY Ltd to carry out earthmoving works on its mining lease. The contract is for services rendered and for the use of DY Ltd's earthmoving equipment only and specifies that Deep Mines will provide fuel from its bulk storage tank for carrying out the work. As DY Ltd's contract agreement makes no provision for the taxable supply of fuel, it is not reasonable to conclude without contacting Deep Mines, that the contract takes into account consideration for the fuel supplied. DY Ltd therefore is not entitled to claim a fuel tax credit on the fuel supplied by Deep Mines.

2.44 If it is reasonable to conclude that another entity was entitled to a fuel tax credit, but had made an increasing fuel tax adjustment in respect of the credit, a taxpayer acquiring the fuel will still be entitled to claim the credit [subsection 41-15(2 )]. An increasing fuel tax adjustment increases a taxpayer's net fuel tax amount, where a taxpayer received too much fuel tax credit because they claimed for what was an eligible use of fuel at the time they obtained the fuel but then applied it in a way that would have entitled them to a lesser fuel tax credit had that been their original intended use. Such an adjustment ensures that a fuel tax credit is claimed only once on a particular fuel and an increasing fuel tax adjustment can allow a further entity to claim a credit for that fuel. Fuel tax adjustments are explained in paragraphs 2.89 to 2.97.

2.45 It is reasonable for a taxpayer acquiring fuel to conclude that an increasing fuel tax adjustment has been made by a previous entity if the taxpayer is, for example, a related entity to the entity that made the adjustment and the taxpayer acquiring the fuel has access to the other entity's accounting records.

Example 2.5

Mulholland Co. buys fuel from its subsidiary company, Mini-Mul Fuels. Mini-Mul Fuels had bought the fuel to use in their business but subsequently sold it to Mulholland Co. for Mulholland Co. to use in their business. Mini-Mul Fuels claimed a credit for that fuel but makes an increasing fuel tax adjustment in its next BAS to take account of the sale that would not have given rise to the fuel tax credit paid to them. Mulholland Co. can claim a credit for the business use of the fuel because as a parent company it is reasonable to conclude that Mini-Mul Fuels made an increasing adjustment.

2.46 A taxpayer will be denied a fuel tax credit if they are aware that a credit has not been claimed in respect of the fuel and another entity higher in the distribution chain will be allowed a decreasing adjustment in respect of the fuel.

No fuel tax credit for fuel to be used in light vehicles on a public road

2.47 If a taxpayer acquires or manufactures in, or imports fuel into, Australia to use in a vehicle with a gross vehicle mass of 4.5 tonnes or less on a public road, they will not be entitled to a fuel tax credit, subject to the transitional rule governing vehicles with a gross vehicle mass of 4.5 tonnes mentioned in paragraph 1.35. [Section 41-20]

2.48 The break point of 4.5 tonnes or less gross vehicle mass aligns eligibility for a fuel tax credit with the additional licensing conditions that must be met in all Australian jurisdictions to drive a vehicle of this mass or greater and the Australian Design Rules for heavy vehicles. In addition, the Heavy Vehicle Charges Determination that establishes the road-user charges for heavy vehicles applies to vehicles over 4.5 tonnes.

2.49 The term 'gross vehicle mass' takes its ordinary meaning as the gross vehicle mass, or if the vehicle is a prime mover, the gross combination mass as accepted by the authority that registered the vehicle, whether that is a state authority or the vehicle is registered under the Federal Interstate Registration Scheme .

What is a public road?

2.50 A road is a public road if it is:

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opened, declared or dedicated as a public road under a statute;

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vested in a government authority having statutory responsibility for the control and management of public road infrastructure; or

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dedicated as a public road at common law.

2.51 A road is not a public road if it is a:

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road constructed or maintained under a statutory regime by a public authority that is not an authority responsible for the provision of road transport infrastructure, in circumstances where the statutory regime provides that public use of, or access to, the road is subordinate to the primary objects of the statutory regime;

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forestry road;

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private access road for use in a mining operation; or

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road that has not been dedicated as a public road over privately owned land.

What is a forestry road?

2.52 A forestry road is a road within a forest or plantation which is constructed and maintained primarily and principally for the purposes of providing access to an area to facilitate forestry activities (eg, to facilitate trees to be planted or tended in the area, or timber felled in the area to be removed) and for related forestry management activities.

What is a private access road for use in mining operations?

2.53 A private access road for use in mining operations is a private road which is constructed and maintained by a person who carries on a mining operation for the purposes of providing access to or from either a mining operation or a place at which beneficiation of minerals or mineral ores occurs.

No fuel tax credit for fuel to be used in motor vehicles that do not meet environmental criteria

2.54 A taxpayer is not entitled to a fuel tax credit for the use of fuel in a diesel motor vehicle travelling on a public road unless the vehicle meets one of a number of environmental criteria. The criteria are intended to encourage the owners and operators of diesel heavy motor vehicles to properly maintain their vehicles in order to reduce exhaust emissions of particulates, smoke and smog-forming pollutants to acceptable levels.

2.55 The criteria are only intended to apply to motor powered road vehicles. They are not intended to apply to vehicles that are not road vehicles.

2.56 If a taxpayer owns or operates a diesel heavy motor vehicle they need to demonstrate that the vehicle meets one of four environmental performance criteria in order to qualify for a fuel tax credit. The criteria are that the vehicle is either:

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registered as a vehicle manufactured on or after 1 January 1996;

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registered in an audited maintenance programme that is accredited by the Transport Secretary;

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meets Rule 147A of the Australian Vehicle Standards Rules 1999 ; or

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complies with a maintenance schedule endorsed by the Transport Secretary.

[Schedule 2, subsection 41-25(1 )]

2.57 The Transport Secretary has the power to determine appropriate maintenance schedules that allow vehicle operators to demonstrate their vehicle is not likely to be a high polluter and to accredit an audited maintenance programme. [Paragraph 41-25(1)(d )]

2.58 Taxpayers claiming fuel tax credits for fuel used on a public road will self-assess their compliance with the environmental performance criteria. However, written records must be kept to prove the validity of a claim. The Commissioner may inspect those records as part of any compliance programme.

Vehicles used primarily on an agricultural property

2.59 Motor vehicles used in carrying on a primary production business that are primarily used on an agricultural property do not have to comply with the environmental criteria [subsection 41-25(2 )]. A vehicle is considered to be used 'primarily' on an agricultural property where, in carrying on a primary production business, the vehicle, for example, is used to transport the primary produce to and from the market, or crosses property that is not defined as agricultural property when travelling from or onto agricultural property.

No fuel tax credit for fuel to be used in aircraft

2.60 If a taxpayer acquires or manufactures in, or imports fuel into Australia that is classified in the Schedule to the Excise Tariff Act 1921 or the Schedule to the Customs Tariff Act 1995 as fuel for use in aircraft, they will not be entitled to a fuel tax credit [section 41-30] . These fuels include kerosene for use in aircraft (known as aviation kerosene, aviation turbine fuel, avtur or Jet A1) and gasoline for use in aircraft (known as aviation gasoline or avgas). Fuel tax imposed on these fuels used in aviation is not imposed for general revenue-raising reasons but rather as a method of cost recovery for various services and oversight of the aviation industry. Fuel tax on aviation fuels is not within the scope of fuel tax reform and therefore the fuels are not eligible for a fuel tax credit.

2.61 If however, a taxpayer acquires, manufactures or imports other taxable fuels for use in an aircraft in carrying on their enterprise, for example diesel, they will be entitled to a fuel tax credit under section 41-5.

Division 42 - Fuel tax credit for domestic electricity generation

2.62 A taxpayer is entitled to a fuel tax credit for fuel acquired or manufactured in, or imported into Australia to be used by them in generating electricity for domestic use [section 42-5] . This can be electricity that the taxpayer generates for their own domestic use as well as electricity that they generate for domestic use by others as long as the taxpayer generating the electricity is not carrying on an enterprise (if a taxpayer is in the business of generating electricity or generates electricity for use in an enterprise, they are entitled to a fuel tax credit under section 41-5).

2.63 Where a taxpayer who is entitled to a fuel tax credit under section 42-5 does not carry on an enterprise, they will claim fuel tax credits in a form approved by the Commissioner. If a taxpayer generates electricity for domestic purposes and also carries on an enterprise, they can claim fuel tax credits for both on the BAS.

2.64 The term 'domestic' indicates that the generation of the electricity is for use in a home, house or household and is therefore of a domestic nature. The term is also intended to cover situations where certain parts of the home are occupied for professional purposes.

Example 2.6

Susanna lives on a 500 acre property, 120 kilometres from the nearest big town, and carries out a primary production business. She uses a diesel-powered generator to produce electricity for two homes on her property - the home she lives in and the home her parents live in. She is entitled to claim a fuel tax credit for the diesel she acquires to use in her generator because the fuel is acquired for use in domestic electricity generation (her entitlement arises under section 42-5).

Susanna uses another diesel generator to power the shearing shed and several other outbuildings used in her primary production business. Susanna is also entitled to claim a fuel tax credit for the diesel she acquires for use in this generator because she has acquired the fuel to carry on her enterprise (her entitlement arises under section 41-5). Susanna claims both fuel tax credits on her BAS.

2.65 If fuel is used to generate electricity for recreational purposes, for example use in a caravan, tent or yacht, no fuel tax credit entitlement arises as the fuel is not used for domestic electricity generation. However, there will be an entitlement to a fuel tax credit if the caravan or yacht is the taxpayer's main or permanent place of residence.

Division 43 - Working out a taxpayer's fuel tax credit

Fuel tax credits are based on the effective fuel tax payable

2.66 The amount of any fuel tax credit payable on fuel is based on the amount of effective fuel tax that is payable on the fuel [subsection 43-5(1 )]. The reason for this is that some fuels, for example domestically-produced ethanol and biodiesel, pay fuel tax at the same rate as diesel and petrol, but the amount of fuel tax effectively payable is reduced by a grant under the Energy Grants (Cleaner Fuels) Scheme Act 2004 or a subsidy paid by the Department of Industry, Tourism and Resources.

2.67 The meaning of fuel tax and taxable fuel are discussed in paragraphs 2.14 to 2.19.

2.68 The intention, therefore, is that the fuel tax credit is based on the effective fuel tax payable rather than the amount of fuel tax payable on the importation or manufacture of the fuel. For example, biodiesel is currently taxed at 38.143 cents per litre and producers receive a cleaner fuel grant equivalent to the tax on the fuel, making the effective fuel tax on the fuel zero. As no effective fuel tax has been paid there is no entitlement to a fuel tax credit for the use of the fuel.

2.69 The amount of 'effective fuel tax' is calculated using a formula that reduces the 'fuel tax amount' by the amount of any 'grant or subsidy' that was or would be payable on the fuel by the Commonwealth. [Subsection 43-5(2 )]

2.70 For a business taxpayer the amount of effective fuel tax is worked out at the rate of fuel tax, grant and subsidy in force at the beginning of the tax period to which the credit is attributed. [Subsection 43-5(2 )]

2.71 For a non-business taxpayer the amount of effective fuel tax is worked out at the rate of fuel tax, grant and subsidy in force on the day the Commissioner receives a return relating to the fuel. [Subsection 43-5(2 )]

Example 2.7

MCH Mining Ltd acquires 10,000 litres each of diesel and biodiesel on 28 August 2006 for use in eligible mining activities not on a public road. MCH Mining Ltd is registered for the GST and has monthly tax periods. On 1 August 2006, fuel tax is payable on diesel and biodiesel at the rate of 38.143 cents per litre. As there is no grant or subsidy amount payable on the production of diesel, the amount of the fuel tax credit payable on the diesel is 38.143 cents per litre. For the 10,000 litres of diesel, MCH Mining Ltd is entitled to claim a fuel tax credit of $3,814.

As a cleaner fuel grant is payable for the biodiesel at the rate of 38.143 cents per litre, the effective fuel tax payable on the biodiesel is reduced to zero. The amount of fuel tax credit payable on the biodiesel is therefore also zero.

2.72 Where a fuel blend meets a particular standard, for example B5 (a blend of 5 per cent biodiesel and 95 per cent diesel) meets the diesel standard, it is treated as having fuel tax paid at the rate applicable to the unblended fuel covered by the standard. For fuel blends where one of the constituents attracts fuel tax at a discounted rate, such as a blend of diesel and biodiesel, the result of this treatment will be a fuel tax credit in excess of the effective fuel tax embedded in the fuel. Where a fuel blend does not meet a fuel standard, the amount of fuel tax credit is not more than the actual fuel tax paid on the fuels that make up the blend.

Example 2.8

MCH Mining Ltd also acquires 10,000 litres of B5 on 28 August 2006 that meets the diesel fuel standard for use in eligible off-road mining activities. MCH Mining Ltd is entitled to claim a fuel tax credit at the diesel rate of 38.143 cents per litre for the blend.

MCH Mining Ltd also purchases 10,000 litres of B20 (a blend consisting of 80 per cent diesel and 20 per cent biodiesel) on 28 August 2006 that does not meet the diesel fuel standard, for use in an eligible mining activity not on a public road. MCH Mining Ltd is entitled to claim a fuel tax credit of 38.143 cents per litre in respect of the diesel portion of the blended fuel and zero cents per litre for the biodiesel portion of the blended fuel.

Exclusions from grant or subsidy amount

2.73 The following grants are paid for reasons other than to offset the fuel tax payable on a fuel and therefore do not reduce the amount of the taxpayer's fuel tax credit:

•

a grant under the Biofuels Capital Grants Program . This programme provided one-off capital grants for projects that provide new or expanded biofuels production capacity;

•

grants for on-road alternative fuel under the Energy Grants (Credits) Scheme Act 2003 . These grants apply for the purchase of biodiesel, ethanol, liquefied petroleum gas, liquefied natural gas and compressed natural gas and will be phased out in the period from 1 July 2006 to 30 June 2010;

•

grants under the Energy Grants (Cleaner Fuels) Scheme Act 2004 . These grants are those payable for low sulphur Premium unleaded petrol, and those intended to be payable from 1 January 2007 to importers and manufacturers of diesel with less than 10 parts per million sulphur to encourage the production of the fuel; and

•

a benefit paid to waste oil recyclers and for eligible uses of specific oils under the Product Stewardship (Oil) Act 2000 .

[Subsection 43-5(3 )]

Reducing the amount of a taxpayer's fuel tax credit

2.74 The amount of any fuel tax credit will be reduced to the extent that fuel tax is imposed to fund a cleaner fuel grant and, for use in vehicles travelling on a public road, by the amount of the road-user charge.

2.75 The Government announced in the 2003-04 Budget, that from 1 January 2007, the fuel tax on diesel will increase for a period of two years to fund a cleaner fuel grant for diesel with less than 10 parts per million sulphur. This initiative, including the additional fuel tax rates required to fund the proposal, will be reviewed in the period prior to implementation to ensure that it aligns with the timing of the new fuel standards and market conditions.

2.76 A fuel tax credit for the acquisition, manufacture or importation of diesel, will be reduced in the years that the cleaner fuel grant applies to the extent that the Minister for Revenue and Assistant Treasurer determines that fuel tax is imposed on the fuel to fund that grant. [Section 43-10]

2.77 The reduction will apply for business taxpayers at the rate of fuel tax applicable at the beginning of the tax period to which the fuel tax credit is attributable. [Paragraph 43-10(6)(a )]

2.78 For non-business taxpayers, the reduction will apply at the rate of fuel tax applicable on the day the Commissioner receives the taxpayer's return. [Paragraph 43-10(6)(b )]

Road-user charge

2.79 The amount of fuel tax credit for fuel used in travelling on a public road is reduced by the amount of the road-user charge determined by the Transport Minister [subsection 43-10(3 )]. If the road-user charge is greater than the effective fuel tax rate for fuel, the fuel tax credit will be zero.

2.80 The amount of a taxpayer's fuel tax credit is not reduced by the amount of the road-user charge if their vehicle's travel on a public road is incidental to its main use. Incidental use of fuel may occur when a vehicle that is used almost exclusively off a public road, is moved a short distance from one off-road location to another via a public road or is operating incidentally on a public road. [Subsection 43-10(4 )]

Example 2.9

Phil is a farmer. In order to move between parts of his property when he is harvesting crops he has to drive his combine harvester on a public road. As the main use of the combine harvester is off-road, the travel that occurs on a public road is considered incidental and Phil does not have to reduce the amount of fuel tax credit by the amount of the road-user charge for part of the use of fuel for travelling on a public road.

2.81 The road-user charge will be set in accordance with the National Transport Commission's heavy vehicle charging determination process. The fuel tax based charge will be adjusted annually in a similar fashion to the way that the States and Territories adjust registration fees for heavy vehicles. Changes to the charge will be made by varying the level of fuel tax credit paid for fuel used in heavy vehicles.

2.82 The fuel tax credit for a business taxpayer will be reduced by the rate of the road-user charge applicable at the beginning of the tax period to which the fuel tax credit is attributable. [Paragraph 43-10(6)(a )]

2.83 For a non-business taxpayer, the fuel tax credit will be reduced by the rate of road-user charge applicable on the day the Commissioner receives a return. [Paragraph 43-10(6)(b )]

2.84 The Minister for Transport will determine the amount of the road-user charge. [Subsection 43-10(5 )]

2.85 The road-user charge for petrol and alternative fuels will be the same as for diesel.

Apportioning fuel between eligible and ineligible uses

2.86 If a taxpayer acquires, manufactures or imports fuel for both eligible and ineligible activities, they will need to apportion the use of that fuel between eligible and ineligible uses to determine the amount of the fuel that is eligible for a fuel tax credit. Taxpayers may use the deductive or constructive methods of calculation to establish the amount of fuel eligible for a fuel tax credit depending on circumstances and pattern of fuel usage.

2.87 Under the constructive method, taxpayers calculate the quantity of fuel eligible for a fuel tax credit in a tax period by adding the amounts of fuel acquired or imported that were used or are intended to be used in each eligible activity.

2.88 Under the deductive method, taxpayers deduct from the fuel acquired or imported, the quantity of fuel that was used or is intended to be used in each ineligible activity to arrive at the quantity of fuel that is eligible for a fuel tax credit.

Division 44 - Increasing and decreasing fuel tax adjustments<

2.89 A taxpayer need only acquire or manufacture in, or import into Australia, taxable fuel with the intention of using it for an eligible purpose to become entitled to a fuel tax credit - they will not need to have actually used the fuel.

2.90 A taxpayer may acquire, manufacture or import fuel with the intention of using it for a particular purpose but subsequently use the fuel for a different purpose. If the amount of the fuel tax credit that would have arisen had the taxpayer originally known of this different purpose differs from the amount the taxpayer is actually entitled to (based on their intended purpose), the taxpayer will have a fuel tax adjustment. [Subsection 44-5(1 )]

2.91 The amount of the fuel tax adjustment will be the difference between the amount that the taxpayer was entitled to and the amount the taxpayer would have been entitled to if their intended use was what they actually used it for. [Subsection 44-5(2 )]

2.92 An adjustment occurs as a result of the fuel being used for a different purpose than was intended at the time of acquisition, import or manufacture. In general, a mistake refers to the claiming of a fuel tax credit when no entitlement, or a different entitlement, existed. An example of a mistake is an arithmetic error resulting in the taxpayer claiming a fuel tax credit in excess of the fuel tax credit available on fuel they acquired during the tax period.

2.93 There are two types of fuel tax adjustments - increasing and decreasing. An increasing fuel tax adjustment increases a taxpayer's net fuel tax amount. A taxpayer will have an increasing fuel tax adjustment if they have received too much fuel tax credit [subsection 44-5(4 )]. A decreasing fuel tax adjustment decreases a taxpayer's net fuel tax amount. A taxpayer will have a decreasing fuel tax adjustment if they have received too little fuel tax credit [subsection 44-5(3 )].

2.94 Fuel tax adjustments can arise in a number of ways. It may be that the activity in which a taxpayer actually uses the fuel is different from that which was intended. For example if fuel, or some of it, is used for a private purpose or the consumption of the fuel results in a different fuel tax credit amount being applicable to the actual use.

Example 2.10

Kate is a primary producer. On 1 September 2006, she acquires 10,000 litres of diesel to use in her combine harvester. The fuel tax credit rate for diesel is 38.143 cents per litre so Kate claims a fuel tax credit of $3,814 in her BAS for the quarterly tax period ending 30 September 2006. During November, Kate uses 100 litres of the diesel in her one tonne utility that she uses for driving to and from town. As she is not entitled to claim a fuel tax credit for the use of fuel in a vehicle with a gross vehicle mass of 4.5 tonnes or less on a public road, Kate has to make an increasing fuel tax adjustment on her BAS for the quarterly tax period ending 31 December 2006 for an amount of $38.14.

2.95 A taxpayer will also need to make a fuel tax adjustment where the fuel is not used. For example, a supply of fuel that a taxpayer has paid for or been invoiced for, is cancelled or not delivered or the fuel is lost, stolen or otherwise disposed of. [Section 44-10]

Attribution rule for fuel tax adjustments

2.96 Taxpayers will attribute fuel tax adjustments to the tax period or return period in which they become aware of the adjustment. [Subsection 65-10(1 )]

2.97 The test of when a taxpayer becomes aware that an adjustment is necessary is an objective test rather than a test based on the subjective understanding of the taxpayer. This means they will be taken to become aware of a fuel tax adjustment when all the facts necessary to make a reasonable person aware are known to them.

Example 2.11

Following from Example 2.10, it is reasonable to conclude that Kate became aware that an adjustment would be necessary with respect to the fuel when she put the fuel in her one tonne utility. Had that been her original intended use of the fuel, she would not have been entitled to a fuel tax credit.

Example 2.12

Marando Fuel Co. acquires fuel on 1 December 2006 that is stored in its bulk storage tanks. Fuel from the tanks is used for various activities that are eligible and ineligible uses for the purposes of fuel tax credit claims. In Marando Fuel Co.'s next tax period, ending 31 December 2006, the company claims a fuel tax credit for half the quantity of the fuel purchased, based on an apportionment of fuel use between eligible and ineligible activities. The amount claimed is an estimate calculated by reference to the company's historical usage patterns and its intention to continue this usage pattern. However, the company's January 2007 records of the actual use in the company's equipment show that less than the estimated half of the quantity of the fuel purchased on 1 December 2006 was used in eligible activities. It would have been reasonable for Marando Fuel Co. to have been aware of the need to make an increasing fuel tax adjustment when they obtained the records showing a lesser portion of fuel was applied to eligible uses.

Division 45 - The Greenhouse Challenge Plus Programme

2.98 Receipt of fuel tax credits by large energy users is conditional on those entities being members of the Greenhouse Challenge Plus Programme. The Government recognises that making greenhouse management a core element of business is important to finding cost-effective solutions to the long-term greenhouse response. Membership of the Greenhouse Challenge Plus Programme signals an expectation that large energy users will participate in an active partnership with government to address climate change. The programme complements the Government's other energy and greenhouse gas abatement measures addressing large energy users. Information about the Greenhouse Challenge Plus Programme can be found on the website of the Australian Greenhouse Office.

2.99 A taxpayer will not be able to claim a total of more than $3 million of fuel tax credits in a financial year unless at the time they make the claim they are a member of the Greenhouse Challenge Plus Programme. [Subsection 45-5(1 )]

2.100 Where a taxpayer becomes a member of the Greenhouse Challenge Plus Programme they will be entitled to claim fuel tax credits for taxable fuel they acquired or manufactured in, or imported into Australia, before they joined the programme, by making a decreasing fuel tax adjustment for the amount of fuel tax credit that they were previously not entitled to take into account. [Subsection 45-5(2 )]

2.101 The decreasing fuel tax adjustment is attributed to the tax period in which the taxpayer becomes a member of the programme. [Subsection 65-10(2 )]

2.102 The decreasing fuel tax adjustment will take into account the credits the taxpayer was previously not entitled to up to five years prior to the end of the financial year in which they became a member of the programme.

Example 2.13

Tom's Transport has monthly tax periods and is not a member of the Greenhouse Challenge Plus Programme for most of the 2006-07 financial year. Tom's Transport makes the following claims for fuel tax credits on its BAS:

Month ending	Fuel tax credits claimed	Total fuel tax credit (year to date)
31 July 2006	$650,000	$650,000
31 August 2006	$250,000	$900,000
30 September 2006	$350,000	$1,250,000
31 October 2006	$175,000	$1,425,000
30 November 2006	$80,000	$1,505,000
31 December 2006	$450,000	$1,955,000
31 January 2007	$210,000	$2,165,000
28 February 2007	$350,000	$2,515,000
31 March 2007	$410,000	$2,925,000
30 April 2007	$270,000	$3,195,000
31 May 2007	$280,000	$3,475,000
30 June 2007	$175,000	$3,650,000

In April, total claims for fuel tax credits for the financial year exceed the $3 million threshold for membership of the Greenhouse Challenge Plus Programme. Tom's Transport will be entitled to claim a fuel tax credit of only $75,000 for April, being the difference between the total fuel tax credits to 31 March 2006 of $2,925,000 and the threshold of $3 million.

On 2 May 2007, Tom's Transport joins the Greenhouse Challenge Plus Programme. When they lodge their BAS for May, they make a decreasing fuel tax adjustment for an amount of $195,000, being the remaining amount of fuel tax credit that it was not entitled to claim in April. Tom's Transport's total claim in May is equal to $195,000 (the decreasing fuel tax adjustment) plus the fuel tax credit entitlement of $280,000 for May.

Application of the Greenhouse Challenge Plus Programme to GST branches, GST groups and GST joint ventures

GST branches

2.103 As a GST branch is not treated as a separate entity for fuel tax credit purposes, the $3 million threshold for entities operating through branches will be calculated as the sum of fuel tax credits received by the parent and all of its branches. If the criterion applies, then the entity (parent and branches) will be required to join the Greenhouse Challenge Plus Programme in order to be entitled to payment of fuel tax credits.

GST groups

2.104 As a GST group is treated as a single entity for fuel tax credit purposes, the $3 million threshold for entities operating within an approved GST group, will be calculated as the sum of fuel tax credits received by the group as a whole. If the criterion applies, then the group member claiming fuel tax credits on behalf of the group (as the representative member of the GST group) will be required to join the Greenhouse Challenge Plus Programme and enter into a Greenhouse Challenge Plus Programme agreement on behalf of all entities within the group in order to be entitled to payment of fuel tax credits.

GST joint ventures

2.105 The $3 million threshold for a GST joint venture will be calculated as the sum of fuel tax credits received by the joint venture operator on behalf of the joint venture. If the criterion applies, then the joint venture operator will be required to join the Greenhouse Challenge Plus Programme on behalf of the GST joint venture.

2.106 Where a joint venture operator consolidates its claims in relation to a number of GST joint ventures, the $3 million threshold will apply separately to each GST joint venture within the consolidated claim, rather than to the total of fuel tax credits received by GST joint ventures covered by the consolidated claim. The joint venture operator will need to ensure that all the GST joint ventures that exceed the $3 million threshold are included in Greenhouse Challenge Plus Programme agreements.

Coverage under existing Greenhouse Challenge Plus agreements

2.107 Where a GST group or joint venture operator is already a member of the Greenhouse Challenge Plus Programme or is part of a group of entities whose parent entity is already a member of the Greenhouse Challenge Plus Programme, then there may be no need for the GST group or joint venture operator to take out a separate Greenhouse Challenge Plus membership. However, any Greenhouse Challenge Plus agreement must cover the activities of the GST group or joint venture(s).

Division 46 - Instalment taxpayers

2.108 Taxpayers that are GST instalment payers, must treat each GST instalment quarter as if it were a tax period [subsection 46-5(1 )]. This means that they will work out their fuel tax credits on a quarterly basis, instead of on an annual basis as they do for GST [subsection 46-5(2 )].

2.109 GST instalment payers may choose to not lodge a return for any of the four quarters. However, in situations where there is an increasing fuel tax adjustment, the instalment taxpayer is required to lodge a return for the last quarter, with lodging a return in the preceding quarters remaining optional. For each quarter that a GST instalment payer does make a claim, they must give their return to the Commissioner on or before the day they would be required to pay the GST instalment to the Commissioner for the quarter. Some instalment payers are only required to pay two GST instalments per year. If these taxpayers choose to make a claim for either of the first two quarters, they must give their return to the Commissioner on or before the day they would have been required to pay their GST instalment for the quarter had they instead paid four instalments per year. [Subsection 46-5(3 )]

2.110 GST instalment payers that are required to give a return to the Commissioner for the last GST instalment quarter in a financial year must do so on or before the day they would be required to pay the GST instalment to the Commissioner for the quarter. [Subsection 46-5(5 )]

2.111 If a GST instalment payer chooses not to give a return to the Commissioner for a quarter, any fuel tax credit or fuel tax adjustment that occurs in that quarter will be attributable to the first quarter thereafter for which they give the Commissioner a return. [Subsection 46-5(4 )]

Example 2.14

Greg owns and operates a dairy farm and is a GST instalment payer. As a primary producer, Greg is entitled to average his income for income tax purposes and is therefore also entitled to pay only the last two GST instalments. However, for the purposes of the fuel tax law Greg can work out his fuel tax credits for a financial year on a quarterly basis. Greg can choose whether to lodge a return for any of the first three quarters, but must lodge a return for the last quarter if he has an increasing fuel tax adjustment in the financial year.

Division 60 - Net fuel amounts

2.112 A taxpayer's net fuel amount is how much they must pay to the Commissioner (if positive), or that the Commissioner must pay to them (if negative). It is worked out using the formula in section 60-5. The net fuel amount is the total fuel tax attributable to the tax period or fuel tax return period, less the fuel tax credits that are attributable to the period. The net fuel amount is decreased or increased by any fuel tax adjustments that are attributable to the tax period or fuel tax return period [subsection 60-5(1 )]. Fuel tax adjustments are discussed in paragraphs 2.89 to 2.97.

2.113 The attribution rules tell taxpayers to which tax period or fuel tax return period they attribute their fuel tax credits. The attribution rules are discussed in paragraphs 2.127 to 2.139.

2.114 The inclusion of total fuel tax in the formula is necessary so that when fuel tax is imposed under the Fuel Tax Bill 2006, entities that have fuel tax obligations will be able to calculate their net fuel tax amount. The figure for total fuel tax will be zero in all cases to begin with, until fuel tax begins to be levied on gaseous fuels under this Bill in 2011.

2.115 If a taxpayer's net amount for a tax period or a return period is greater than zero, the net amount is the amount they must pay to the Commissioner for that tax period or return period. The net fuel amount will be greater than zero if the fuel tax payable and increasing fuel tax adjustments for a tax period or a return period exceed the fuel tax credits and decreasing fuel tax adjustments for the period.

Example 2.15

Berkley Fuels Pty Ltd is registered for the GST and has monthly tax periods. Their total fuel tax amount for August 2006 is zero. They have total fuel tax credits of $6,000 and $7,000 worth of increasing fuel tax adjustments. Their net fuel amount for the period is $1,000. They pay this amount to the Commissioner when they lodge their return for August 2006.

It is August 2011 and Berkley Fuels Pty Ltd has a total fuel tax amount of $20,000 because they are now liable for fuel tax on their liquefied petroleum gas. They have, similar to their activities in August 2006, total fuel tax credits of $6,000 and $7,000 worth of increasing fuel tax adjustments. Their net fuel amount for the period is $21,000, that they pay to the Commissioner when they lodge their return for August 2011.

2.116 If a taxpayer's net amount for a tax period or fuel tax return period is less than zero, the net fuel amount, (expressed as a negative amount) is the amount the Commissioner must pay to them for the period. The net fuel amount will be less than zero if the fuel tax credits and decreasing fuel tax adjustments for the period exceed the fuel tax and increasing fuel tax adjustments for the period.

Example 2.16

Continuing the previous example, in the tax period September 2006, Berkley Fuels Pty Ltd has a total fuel tax amount of zero and total fuel tax credits of $7,500. They have no adjustments. Their net amount for the tax period is -$7,500. The Commissioner pays this amount to Berkley Fuels Pty Ltd after they have lodged their return for the period, assuming that they have no other tax debts that this amount could be offset against.

In September 2011, Berkley Fuels Pty Ltd has a total fuel tax amount of $6,000 because they are now liable for fuel tax on their liquefied petroleum gas. They have fuel tax credits totalling $7,500 and no fuel tax adjustments for the month. Their net fuel amount for the tax period is -$1,500. Assuming Berkley Fuels Pty Ltd has no other tax debts against which this amount could be offset, the Commissioner pays them $1,500 after they lodge the return for September 2011.

2.117 If a taxpayer's net fuel amount for the tax period or the return period is zero, they do not have to pay anything to the Commissioner for that period, and the Commissioner does not have to pay anything to them for that period.

Example 2.17

Continuing the previous example, in the next tax period Berkley Fuels Pty Ltd have a total fuel tax amount of $10,000 and total fuel tax credits of $4,600. They have a decreasing adjustment of $5,400. Their net fuel amount for the tax period is zero. They still need to lodge a return for the tax period but no payment or refund relating to fuel tax is necessary.

Division 61 - Returns, refunds and payments

Refunds

2.118 The Commonwealth is obliged to pay a taxpayer any amounts of fuel tax credits that remain after they have netted off their fuel tax, fuel tax credits and fuel tax adjustments for a tax period or return period [subsection 61-5(1 )]. A taxpayer is entitled to be paid the amount when they have given the Commissioner a return [subsection 61-5(2 )].

2.119 The Commonwealth is not obliged to pay a taxpayer's refund if they have a liability arising under another Act administered by the Commissioner. The Commissioner may apply a taxpayer's refund to the liability and pay them any remaining refund. The Commissioner may also be required to pay a tax refund to the Child Support Registrar or Centrelink in order that it be applied against other Commonwealth debts.

2.120 If a taxpayer does not have a liability under another Act administered by the Commissioner, the Commissioner is generally required to pay them any amount by which the taxpayer's net amount for a tax period is less than zero.

Payments

2.121 A taxpayer is obliged to pay the Commissioner an amount of fuel tax or an amount resulting from an increasing fuel tax adjustment that remains after fuel tax credits and decreasing fuel tax adjustments have been netted off against their fuel tax. A taxpayer must pay the amount on or before the day that they are required to give the Commissioner a return. [Section 61-10]

Returns

2.122 A taxpayer must provide a return for each tax period or fuel tax return period, so that the Commissioner knows how much to collect or refund. Different rules may apply to instalment taxpayers, as discussed in paragraphs 2.108 to 2.111.

2.123 A business taxpayer must give a return to the Commissioner for each tax period. This return will form part of the BAS. Generally, the return must be given to the Commissioner on or before the 21st or 28th day (depending on the taxpayer's BAS cycle) following the end of the tax period to which the return relates or such other period as the Commissioner allows (depending on electronic or paper lodgement by a tax or non-tax agent). [Subsection 61-15(1 )]

2.124 A non-business taxpayer must give the Commissioner a return by the 21st day after the end of the fuel tax return period, which is the period specified in the return. [Subsections 61-15(2) and 61-20(1 )]

2.125 A non-business taxpayer must end a fuel tax return period within 90 days or a longer period if allowed by the Commissioner, if they become aware that they have an increasing fuel tax adjustment. [Subsection 61-20(2 )]

2.126 The question of when a taxpayer becomes aware that an adjustment is necessary, is an objective test rather than a test based on the subjective understanding of the taxpayer. This means the taxpayer will be taken to become aware of a fuel tax adjustment when all the facts necessary to make a reasonable person aware are known to the taxpayer.

Division 65 - Attribution rules

Attribution rule for fuel acquired or imported

2.127 The tax period to which a business taxpayer's fuel tax credit is attributable depends on whether they account for GST on a cash basis or an accrual basis.

2.128 If a taxpayer accounts for GST on a cash basis, an input tax credit for a creditable acquisition it makes is attributable to the tax period in which it provides consideration for that acquisition. A taxpayer will therefore attribute fuel tax credits for an acquisition of fuel to the tax period in which they pay for the fuel.

2.129 If a taxpayer accounts for GST on an accrual basis, an input tax credit for a creditable acquisition it makes is attributable to the tax period in which:

•

it provides any consideration for the acquisition; or

•

an invoice for the acquisition is issued (an invoice is a document notifying an obligation to make a payment and can include a tax invoice),

whichever is the earlier.

2.130 A taxpayer will attribute fuel tax credits for acquisitions of fuel to the same tax period in which:

•

it provided any consideration for the supply of fuel; or

•

an invoice for the supply of fuel is issued,

whichever is the earlier. [Paragraph 65-5(1)(a )]

2.131 If a taxpayer does not hold a valid tax invoice when it lodges a GST return for a tax period mentioned above, both the input tax credit and the fuel tax credit cease to be attributable to this period. Instead, the input tax credit and the fuel tax credit become attributable to the first tax period for which the taxpayer gives the Commissioner a GST return at a time when the taxpayer does hold the tax invoice.

2.132 Subsection 29-10(4) of the GST Act allows an entity to postpone the attribution of an input tax credit. If, under this provision, attribution of an input tax credit is postponed to a later tax period, the corresponding fuel tax credit will also become attributable to this later period.

2.133 An input tax credit for a creditable importation is attributable to the period in which the taxpayer pays the GST on the importation, regardless of whether it accounts for GST on a cash or non-cash basis. The fuel tax credit for an importation of fuel will also be attributable to this period.

2.134 If a taxpayer's business involves providing supplies that are input taxed, they cannot normally claim input tax credits for the GST payable on the business inputs that relate to that supply. Under the fuel tax law, a taxpayer is however entitled to claim a fuel tax credit for taxable fuel that they acquire or import. A taxpayer will attribute the fuel tax credit to the same tax period that an input tax credit would have been attributable to, had they been allowed to claim an input tax credit in respect of the acquisition or importation of the fuel [paragraph 65-5(1)(b )]. The tax period to which they attribute the fuel tax credit for an acquisition of fuel will depend on whether they account for the GST on a cash or accrual basis.

2.135 Non-business taxpayers become entitled to a fuel tax credit in the fuel tax return period in which they acquire or import the fuel. The meaning of 'fuel tax return period' is discussed in paragraphs 2.122 to 2.126.

Attribution rule for fuel a taxpayer manufactures

2.136 The point in time at which a taxpayer who manufactures fuel becomes entitled to a fuel tax credit is the tax period or return period in which the fuel was entered for home consumption. 'Entered for home consumption' means to enter the fuel in accordance with the relevant provisions of the Excise Act 1901 or the Customs Act 1901 and is the taxing point at which excise and customs duty applies. [Subsection 65-5(3 )]

Later attribution rule for fuel tax credits

2.137 Taxpayers may choose to postpone the attribution of a fuel tax credit to a later period. This can assist taxpayers, for example, in cases where they are not aware they hold a tax invoice in respect of a creditable acquisition until after they have lodged their BAS for a tax period. In these circumstances, the GST Act allows them to postpone the attribution of the input tax credit to any tax period after they hold a tax invoice, subject to the four-year time limit before a fuel tax credit claim expires. [Subsection 65-5(4 )]

2.138 This rule does not apply to taxpayers who are or become members of the Greenhouse Challenge Plus Programme and make fuel tax credit claims in relation to eligible fuel dealings prior to their membership. Special rules for the Greenhouse Challenge Plus Programme provide that these taxpayers would make a decreasing fuel tax adjustment attributable to the tax period in which the taxpayer becomes a member of the programme. The Greenhouse Challenge Plus Programme rules, including how fuel tax credits are attributed, are discussed in paragraphs 2.98 to 2.102. [Subsection 65-5(5 )]

Attribution rules for fuel tax adjustments

2.139 Increasing or decreasing fuel tax adjustments arising because the fuel is used differently than intended or is not used at all, are attributed to the tax period or fuel tax return period in which the taxpayer became aware of the adjustment. [Subsection 65-10(1 )]

2.140 A decreasing fuel tax adjustment arising after a taxpayer joins the Greenhouse Challenge Plus Programme, is attributed to the tax period in which they became a member of the programme. [Subsection 65-10(2 )]

Division 70 - Special rules about entities

2.141 The GST Act provides special rules that tailor the operation of the GST to the way particular entities are organised. If a special GST rule applies to the way a taxpayer's business is organised, the same rule will generally apply to them for fuel tax credits.

Application of the fuel tax law to GST groups

2.142 Entities may form a GST group subject to the approval of the Commissioner. If two or more taxpayers are approved as a GST group, they are treated as a single entity for fuel tax credit purposes. This means that under the fuel tax credit system the representative member of the group will be entitled to claim fuel tax credits that relate to acquisitions or importations of fuel for the group. [Section 70-5]

GST joint ventures

2.143 Under the fuel tax credit system, the operator of a joint venture will be entitled to any fuel tax credits in respect of acquisitions or importations of fuel it makes on behalf of the other joint venturers for the purpose of the joint venture. [Section 70-5]

Entry and exit history rules

Entry history rule

2.144 From the time that a particular entity starts to be treated as a single entity (ie, a GST group or a GST joint venture), that single entity inherits the history of any fuel that the particular entity brings with them into the single entity. [Subsection 70-10(1 )]

Example 2.18

K Co and M Co form a GST group to provide on-road freight transport. Prior to forming the group, K Co acquires fuel for use in off-road applications in its primary production enterprise and claims a fuel tax credit. The fuel is then used by the group in its transport business. The group is taken to have acquired the fuel for the purposes for which K Co acquired it. The resulting increasing fuel tax adjustment (because of the road-user charge payable) for the different use of the fuel will be made by the group, rather than by K Co.

Exit history rule

2.145 From the time that a particular entity ceases to be treated as a single entity (ie, a GST group or a GST joint venture), that particular entity inherits the history of any fuel that they take with them from the single entity. [Subsection 70-10(2 )]

Example 2.19

Patrick, Michael and Tony are farmers who, together with Meixner Trust, operate as a GST group. They acquire fuel for use in tractors and other farm machinery. When Patrick decides to leave the group, he takes a portion of the fuel and uses it for non-business purposes. Patrick is taken to have acquired the fuel for the purposes that the group acquired it. The resulting increasing fuel tax adjustment for the different use of the fuel will be made by Patrick, rather than by the group.

Application of fuel tax law to religious practitioners and religious institutions

2.146 Under the GST law, activities performed by a religious practitioner, as a religious practitioner of a religious institution, will be taken to be the activities of the religious institution (and not the activities of the religious practitioner). Consequently, a religious practitioner will not carry on an enterprise by performing these activities. The result is that these religious practitioners will not be eligible (or need) to register for the GST for these activities. The same rule will apply to these entities under the fuel tax law. [Section 70-20]

Application of fuel tax law to GST branches, resident agents and non-profit sub-entities

GST branches

2.147 Some business entities operate through a divisional or branch structure. Their normal accounting practice may be to account on a branch or divisional basis and amalgamate their accounts once a year. As these entities are able to register branches separately for GST, each branch accounts for the input tax credits on the creditable acquisitions and importations that it makes. Similarly, under the fuel tax credits system each branch will claim fuel tax credits for the acquisitions or importation of fuel, separately from their parent entity. However, the parent entity still bears legal responsibility and is required to lodge a return in relation to each of its GST branches for each tax period. [Section 70-30]

Resident agents acting for non-residents

2.148 Under the GST law, non-residents can register for the GST if they are carrying on an enterprise. If a non-resident entity is registered for the GST and has a resident agent, the resident agent is required to be registered from when he or she starts acting as the agent. The resident agent is required to be registered because they are liable for the GST on taxable supplies and taxable importations made by the non-resident through them. The resident agent is entitled to input tax credits on creditable acquisitions and creditable importations that the non-resident makes through them. The resident agent also has any adjustments that relate to those supplies, acquisitions or importations. Under the Fuel Tax Bill 2006, fuel tax credits on the acquisition, manufacture or importation of fuel will be claimed by the resident agent and not by the non-resident. [Section 70-30]

Non-profit sub-entities

2.149 The GST law allows certain non-profit entities to choose to treat separately identifiable sections of their organisation as though they are separate entities for GST purposes. These are called non-profit sub-entities. A non-profit sub-entity is also treated as a separate entity for the purposes of fuel tax law.

2.150 The GST law also allows a registered non-profit sub-entity to choose to group with the core entity or with other registered non-profit sub-entities if they meet the general requirements for grouping in Division 48 of the GST Act. This enables an organisation to effectively eliminate the GST effects of transactions between grouped members. The same rule will apply to these entities under the fuel tax law. [Section 70-30]

Incapacitated entities

2.151 Where an incapacitated entity (including an entity that is bankrupt, liquidated or in receivership) has a representative (defined in the GST Act), provisions of the GST law govern the registration of the representative as a representative of the incapacitated entity. The GST law also aligns the tax periods of a registered representative with those applying to the incapacitated entity and sets out rules for adjustments the representative makes for supplies, acquisitions and importations made by the incapacitated entity made before the representative was appointed.

2.152 Section 70-25 applies the same registration requirements to representatives of incapacitated fuel tax credit claimants and the fuel tax adjustments the representative makes in relation to the incapacitated entities' prior activities would follow the same arrangements as adjustments they make for GST purposes. [Section 70-25]

Division 75 - Anti-avoidance

2.153 The anti-avoidance provisions in the Fuel Tax Bill 2006 is based on the anti-avoidance provisions in the GST Act. Their purpose is to prevent schemes that are designed to obtain fuel tax benefits by taking advantage of the fuel tax law in circumstances other than those intended by the fuel tax law.

2.154 The anti-avoidance provisions apply to schemes which seek to reduce or delay paying fuel tax or increase or bring forward a refund of fuel tax.

Explanation of the provisions

2.155 The anti-avoidance provisions can be divided into two parts. They are:

•

the criteria for the application of the anti-avoidance provision - [Subdivision 75-A] ; and

•

the provisions dealing with the consequences of the anti-avoidance provisions applying - [Subdivision 75-B] .

2.156 These provisions apply where an entity (referred to as the avoider) has obtained fuel tax benefits from a scheme, and it is concluded that the dominant purpose of the scheme (or part of the scheme) is to give an entity a fuel tax benefit, or a principal effect of a scheme (or part of a scheme) is to give the avoider a fuel tax benefit. [Subsection 75-5(1 )]

2.157 Three requirements must be satisfied before the anti-avoidance provisions apply:

•

there must be a scheme;

•

an entity must obtain a fuel tax benefit from the scheme:

•

the concept of a fuel tax benefit will cover reducing the fuel tax payable, increasing a refund, delaying payment of fuel tax and bringing forward a refund of fuel tax; and

•

it is reasonable to conclude, taking into account a list of relevant factors, that:

•

the sole or dominant purpose of an entity that entered into or carried out the scheme (or part of the scheme) was to obtain a fuel tax benefit for any entity; or

•

a principal effect of the scheme (or part of the scheme) was to obtain a fuel tax benefit for the avoider.

2.158 If the anti-avoidance provisions apply, the Commissioner can make the scheme ineffective for fuel tax purposes. The Commissioner can do this by making a declaration that has the effect of negating the fuel tax benefit obtained by the avoider under the scheme. [Subdivision 75-B]

2.159 The Commissioner can also make a declaration that has the effect of compensating an entity that is disadvantaged by the scheme or part of the scheme, if:

•

a declaration has been made against the avoider in relation to the scheme or part of the scheme; and

•

the Commissioner considers it fair and reasonable that the disadvantage be negated or reduced.

2.160 In making any declaration in this Division, the Commissioner can disregard the scheme and reconstruct the events that took place.

2.161 Decisions made under Division 75 will be reviewable fuel tax decisions, and will be subject to rights of objection under the Taxation Administration Act 1953 (TAA 1953).

Explanation of the specific rules - Subdivision 75-A

2.162 There are three requirements that must be satisfied before Division 75 will apply (see paragraph 2.156).

Requirement 1: There must be a scheme

2.163 'Scheme' has the meaning given by subsection 165-10(2) of the GST Act and means:

•

any express or implied arrangement, agreement, understanding, promise or undertaking. An arrangement, agreement, understanding, promise or undertaking will still come within the definition of 'scheme' even if it is not, or is not intended to be, enforceable by legal proceedings; or

•

any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

Requirement 2: An entity must get a fuel tax benefit from a scheme

2.164 The concept of an entity getting a 'fuel tax benefit' from a scheme is defined in subsection 75-10(1).

2.165 An entity gets a fuel tax benefit when it:

•

does not pay fuel tax or pays less fuel tax;

•

obtains payment or increased payment of a refund;

•

pays fuel tax later; or

•

gets a refund earlier.

[Subsection 75-5(1 )]

2.166 An 'amount' includes a nil amount - see the definition of 'amount' in section 110-5. As a consequence the proposed anti-avoidance rules apply where:

•

an amount payable by an entity is reduced to zero or nil because of a scheme [subsection 75-10(1)(a )]; or

•

an amount payable to the entity is increased from zero or nil because of a scheme [subsection 75-10(1)(b )].

2.167 The two outcomes described in paragraph 2.165 cover the cases where, because of a scheme, a net amount payable by the entity to the Commissioner becomes a refund payable by the Commissioner to the entity, that is:

•

the part of the fuel tax benefit involving the actual amount payable by the entity to the Commissioner (ie, zero or nil) is reduced from the amount that should have been paid [subsection 75-10(1)(a )]; or

•

the part of the fuel tax benefit involving the actual amount payable by the Commissioner to the entity is increased from the amount that should have been paid (ie, zero or nil) [subsection 75-10(1)(b )].

What connection does there need to be between the fuel tax benefit and the scheme?

2.168 An entity will get a fuel tax benefit from a scheme if a fuel tax benefit should not have arisen, or could not reasonably be expected to have arisen, apart from the scheme or part of the scheme. [Subsection 75-10(1 )]

2.169 This involves an enquiry into what would have occurred if the scheme or part of the scheme had not been entered into or carried out.

2.170 An entity that gets a fuel tax benefit from a scheme, even if the entity claims it would not have entered into any type of transaction had the actual scheme not been entered into, can still have that fuel tax benefit negated. [Subsection 75-10(2 )]

An entity can get benefits from part of a scheme

2.171 Fuel tax benefits may arise from a single transaction. To ensure that the anti-avoidance provisions apply appropriately and effectively to a fuel tax benefit arising from a single transaction, specific rules provide that a fuel tax benefit can arise from part of a scheme. [Subsection 75-10(1 )]

2.172 The fact that a fuel tax benefit can arise from part of a scheme is reflected throughout the Fuel Tax Bill 2006 dealing with anti-avoidance.

Requirement 3: The purpose or effect of the scheme was to obtain a fuel tax benefit

2.173 The final requirement for the application of Division 75 is that the purpose or the effect of the scheme or part of the scheme was to obtain a fuel tax benefit. [Paragraph 75-5(1)(c )]

2.174 This requires one of two tests to be satisfied - either the purpose test or the effect test.

What is the purpose test?

2.175 This third requirement is satisfied if it is reasonable to conclude an entity entered into or carried out the scheme or part of the scheme with the sole or dominant purpose of that entity or another entity getting a fuel tax benefit from the scheme. [Subparagraph 75-5(1)(c)(i )]

2.176 For the purposes of this test, the entity whose purpose is determined:

•

is the entity which entered into or carried out the scheme or part of the scheme, alone or with others; but

•

need not be the avoider.

2.177 The dominant purpose is the ruling, prevailing or most influential purpose.

What is the effect test?

2.178 Alternatively, this third requirement is satisfied if a principal effect of the scheme or part of the scheme is that the avoider got the relevant fuel tax benefit. [Subparagraph 75-5(1)(c)(ii )]

2.179 The test is different from the purpose test in that it applies specifically to the avoider and the fuel tax benefit obtained by the avoider.

2.180 For this test, a principal effect is an important effect, as opposed to merely an incidental effect.

What matters are to be considered in determining purpose or effect?

2.181 The matters outlined below are taken into account in coming to a reasonable conclusion about the purpose or effect of the scheme or part of the scheme. [Subsection 75-15(1 )]

2.182 The matters apply to parts of a scheme in the same way as they apply to a scheme. [Subsection 75-15(2 )]

2.183 The matters to be considered are:

•

the manner in which the scheme or part of the scheme was entered into or carried out [paragraph 75-15(1)(a )]. The terms 'manner', 'entered into' and 'carried out' are terms that allow various matters to be taken into account. The terms are not given any restricted meaning. 'Manner' would include consideration of the way in which, and method or procedure by which, the particular scheme or part of the scheme in question was established. The scheme or part of the scheme for these purposes would be the particular means adopted by an entity to obtain the fuel tax benefit;

•

the form and substance of the scheme or part of the scheme [paragraph 75-15(1)(b )]. This matter will specifically include considering the legal rights and obligations involved in the scheme or part of the scheme [subparagraph 75-15(1)(b)(i )] and the economic and commercial substance of the scheme [subparagraph 75-15(1)(b)(ii )]. Both of these issues will be important in considering 'purpose' or 'effect' of the scheme;

•

the purpose or object of these Bills, the Excise Act 1901 , the Excise Tariff Act 1921 , the Customs Act 1901 , the Customs Tariff Act 1995 , the Energy Grants (Credits) Scheme Act 2003 and the GST Act (to the extent that they are relevant) and any relevant provisions of those Acts [paragraph 75-15(1)(c )]. Benefits are derived under avoidance schemes contrary to the purpose or object of the law. The purpose or object of the law is therefore a relevant consideration. Whether or not the purpose or object of these Bills or any relevant provision is expressly stated will not affect the relevance of this matter;

•

the timing of the scheme or part of the scheme [paragraph 75-15(1)(d )]. This matter may be particularly relevant in cases where the fuel tax benefit involves timing benefits;

•

the period over which the scheme or part of the scheme is entered into or carried out [paragraph 75-15(1)(e )];

•

the effect that these Bills have in relation to the scheme or part of the scheme [paragraph 75-15(1)(f )];

•

any change in the avoider's financial position that results, or may reasonably be expected to result from the scheme or part of the scheme [paragraph 75-15(1)(g )];

•

any change in the financial position of an entity connected to the avoider that results, or may reasonably be expected to result [paragraph 75-15(1)(h )]. A connected entity is an entity that has or had a connection or dealing with the avoider, whether or not that connection or dealing is or was of a family, business or other nature;

•

any other consequence for the avoider or a connected entity of the scheme or part of the scheme having been entered into or carried out [paragraph 75-15(1)(i )];

•

the nature of the connection or dealing between the avoider and a connected entity [paragraph 75-15(1)(j )]. This matter will include considering whether any dealing between the avoider and the connected entity was at arm's length;

•

the circumstances surrounding the scheme or part of the scheme [paragraph 75-15(1)(k )]. This allows an enquiry into matters and events prior to an entity entering into or commencing a scheme or part of a scheme; and

•

any other relevant circumstances [paragraph 75-15(1)(l )]. This ensures any relevant circumstance not otherwise covered is taken into account.

Does it matter where the scheme is entered into or carried out?

2.184 The fact that any part of a scheme is entered into or carried out outside of Australia does not affect the application of Division 75. [Subsection 75-5(2 )]

Explanation of the specific rules - Subdivision 75-B: the Commissioner may negate effects of schemes

2.185 Subdivision 75-B makes the outcome of a 'scheme' to which this Division applies ineffective.

The Commissioner can make declarations making an avoider's fuel tax benefits ineffective

2.186 If Division 75 applies to a scheme, the Commissioner can make a declaration negating the avoider's fuel tax benefit. The declaration can state that the avoider's net amount for a specified tax period or return period is, and at all times has been, a particular amount. [Section 75-40]

2.187 Declarations made by the Commissioner under this section will be reviewable fuel tax decisions.

The Commissioner can make declarations compensating an entity other than the avoider

2.188 The Commissioner can also make a declaration compensating an entity other than the avoider for a fuel tax disadvantage that entity has got from the scheme. [Section 75-45]

2.189 Three conditions must be satisfied before the Commissioner can make such a declaration for a particular entity (referred to as 'the loser'):

•

the Commissioner must have made a declaration in relation to the avoider's fuel tax benefit [paragraph 75-45(1)(a )];

•

the Commissioner considers the loser gets a fuel tax disadvantage from the scheme [paragraph 75-45(1)(b )]. A 'fuel tax disadvantage' from a scheme is defined in subsection 75-45(2); and

•

the Commissioner considers it fair and reasonable to adjust or negate the loser's fuel tax disadvantage [paragraph 75-45(1)(c )].

2.190 The Commissioner's declaration can compensate for the fuel tax disadvantage by stating that the loser's net amount for a specified tax period or return period is, and at all times has been, a particular amount. [Subsection 75-45(3 )]

2.191 The declaration cannot have the effect of placing the loser in a more favourable position for fuel tax than the loser would have been in apart from the scheme or part of the scheme [subsection 75-45(4 )]. A reference to a 'net amount' under the declaration not being less than the net amount would have been apart from the scheme or part of the scheme covers the case of a refund not being greater than it would have been apart from the scheme or part of a scheme.

2.192 An entity can request in writing that the Commissioner make a compensating declaration for that entity. The Commissioner must decide whether to grant the request, and give the entity written notice of the decision. [Paragraph 75-45(5 )]

2.193 Any declaration made, as well as any decision not to make a declaration by the Commissioner, is a reviewable fuel tax decision. Objections can be lodged against the declaration as set out in Division 3 of Part IVC of the TAA 1953.

The Commissioner can disregard any part of the scheme in making declarations

2.194 The Commissioner can disregard the scheme or any part of the scheme in making a declaration to negate an avoider's fuel tax benefit, or to negate or reduce a loser's fuel tax disadvantage, arising from that scheme or part of that scheme. [Section 75-55]

2.195 The Commissioner may do all or any of the following:

•

treat an event that actually happened as not having happened at all [paragraph 75-55(a )], as having happened at a particular time or as having involved particular action by a particular entity [paragraph 75-55(c )];

•

treat an event that did not actually happen as having happened, and if appropriate, as having happened at a particular time or as having involved particular action by a particular entity [paragraph 75-55(b )].

2.196 This allows the Commissioner to disregard the scheme or part of the scheme and reconstruct the events that took place. The reconstruction is linked to finding the most economically equivalent transaction to the scheme or part of the scheme.

Amounts are payable in accordance with the declaration

2.197 A declaration negating a fuel tax benefit, or negating or reducing a fuel tax disadvantage has effect according to its terms. [Section 75-50]

2.198 Adjustments to amounts payable by the entity to the Commissioner because of a declaration, are payable under Division 61 of the Bill, which deals with payments by an entity of net amounts for a tax period and GST on taxable importations to the Commissioner.

2.199 Adjustments to amounts payable by the Commissioner to the entity because of a declaration, are payable under Division 61 of the Bill, which deals with refunds by the Commissioner of net amounts to an entity.

Other administrative matters

One declaration can cover several tax periods or importations

2.200 Statements relating to various tax periods or return periods can be included in a single declaration. [Section 75-60]

A copy of a declaration must be given to the entity affected

2.201 The Commissioner must provide a copy of a declaration to the entity whose net amount for a tax period or return period is stated in the declaration. [Subsection 75-65(1 )]

2.202 Failure to satisfy this requirement does not affect the validity of the declaration [subsection 75-65(2 )]. The requirement is formal in nature and does not nullify the operation of the Division to any scheme or part of a scheme.

Division 95 - Miscellaneous provisions

Section 95-5 - Determination of blends that no longer constitute fuels

2.203 An entity may produce blends of fuel products with other products, for use other than as a fuel - for example, for use as a solvent. If the blend can be used as a fuel, the end user will claim a fuel tax credit for that fuel under section 41-5. Some of these blends incorporate the addition of non-excisable products to fuels - for example, a non-excisable product such as methyl ethyl ketone is blended with toluene, a fuel, to make thinners. At some point in time the non-excisable product makes up a sufficient component of the blend, so that the end product does not present a significant risk of substitution as fuel.

2.204 The Commissioner may determine by legislative instrument that such a fuel blend does not constitute a fuel [subsection 95-5(1 )]. If the Commissioner has made such a determination then the producer of the blend is considered to have used the fuel, rather than the end user, and is entitled to a fuel tax credit.

2.205 There are several factors that the Commissioner must take into consideration when making the determination [subsection 95-5(3 )]. The factor that he must give greatest weight to is the risk that the blend may be used as a fuel and the resulting financial impact on the Commonwealth [paragraph 95-5(3)(d )].

Section 95-10 - Application of this law to the Commonwealth

2.206 Fuel tax liability may not extend to the Commonwealth and there are certain 'untaxable Commonwealth entities' that take the definition in the GST law. To ensure that Commonwealth entities are also effectively covered by the fuel tax regime, a notional entitlement to fuel tax credits subsists with these Commonwealth entities, and fuel tax adjustments (explained in paragraphs 2.89 to 2.97) are made notionally.

2.207 The Minister for Finance and Administration is authorised to give written directions as to the transfer of moneys in Commonwealth entities' accounts and anything else in relation to notional fuel tax credit entitlements and adjustments.

2.208 A written direction given by the Minister for Finance and Administration under this provision is not a legislative instrument as it does not fall within the definition given in section 5 of the Legislative Instruments Act 2003 . [Section 95-10]

Section 95-100 - Regulations

2.209 The Governor-General is authorised to make regulations prescribing matters that are either required or permitted to be prescribed, or that are necessary or convenient to be prescribed for carrying out or giving effect to an Act. [Section 95-100]