Excise guidelines for the fuel industry

Oil recycling involves the use of processes to convert used or waste oils into saleable products that can be reused. This conversion constitutes excise manufacture where the recycling process results in something new or different having a distinctive character or use. Recycling to this extent constitutes manufacture and requires an excise manufacturer licence. [336] Merely preparing waste oil for re-use (eg settling or straining for large scale impurities) is not considered to be manufacture and does not make the end product excisable.

Some of these products are excisable fuel products. [337]

For more information about obtaining an excise manufacturer licence see Chapter 2 - Licensing: Applications .

13.3 POLICY AND PRACTICE

13.3.1 HOW DO I KNOW WHEN MY RECYCLING PROCESS ALSO CONSTITUTES EXCISE MANUFACTURE?

Recycling includes filtering, de-watering, demineralisation, separation of contaminants by settlement, centrifuge and refining to treat waste or contaminated oils or fuels. However, it is noted that these processes can be performed with varying levels of effectiveness depending on the type of equipment or process used.

It is a question of fact and degree in relation to which an exercise in judgement is involved whether a recycling process (for example, filtering, de-watering and de-mineralisation, or refining) results in something that is new or different having a distinctive character or use.

Example 13A [338] : recycling that is not manufacturing or producing an excisable good

Di Waste Oils Pty Ltd (Di) is a waste management company that collects various used oils, coolants (glycol and water) and other hazardous liquids.

These waste liquids are collected from several sites in a single journey. During collection, the waste liquids are pumped into a tanker through a metal screen. By detecting audible changes in pump speed caused by variations in the viscosity of liquid passing through it, the tanker operator switches from one segregated part of the tanker to another to separate the fluids according to the relative viscosity. This is done in order to optimise the separation of less viscous fluids including water, which will be directly disposed of by Di as hazardous waste, from other higher viscosity hydrocarbon liquids.

At Di's depot, the tanker's compartments containing the less viscous liquids are disposed of as hazardous waste. The higher viscosity liquids (comprising primarily used oils and hydraulic fluids) are pumped through a filter bag into a large fixed waste oil storage tank. The filter bag removes small particles of wear metal and other solid or semi-solid contaminants.

The oil in the waste oil tank is then pumped through a heat exchange where it is heated to a suitable temperature (to reduce the viscosity of the oil which assists with separation) and passed through a centrifuge to remove any remaining solids and water suspended within the oil. The oil is then tested to ensure, among other things, that the oil is compliant with local council and State environmental legislation and that it meets customer specifications. The oil is then sold as 'low grade burner fuel'.

The low grade burner fuel is not a new and different product with a distinctive character or use. The burner fuel 'merely contains less water and other extrinsic impurities than the used oil'. The burner fuel does not inherently have a different utility to that out of which it was made and is 'merely better able to be used for the same purpose'.

Di has not manufactured or produced a product for excise purposes.

This example can be contrasted with example 13B below in which used oil is subjected to an additional step of 'demineralisation'. This additional step results in the removal of impurities that are more intrinsic in nature (than the water and other extrinsic impurities removed by filtering and de-watering alone).

Given that the above processes are not recycling, they would not be considered to constitute excise manufacture and no excise licence would be required.

Example 13B [339] : recycling that is manufacturing or producing an excisable good

Eric is an oil recycler. Eric collects used oil of varying type and quality from multiple sources. Upon arrival at his depot, Eric drains any free water from the road tanker and then pumps the used oil through a screen into a reaction tank.

In order to reduce the ash content of the oil when combusted, Eric needs to remove intrinsically dissolved mineral contaminants produced from the breakdown of mineral enhancers and lubricants, both added to the oil by manufacturers and accumulated from fuel engine deposits.

To do so Eric adds a quantity of sulphuric acid followed by an inter-facial surface active agent (surfactant) to the reaction tank and the mixture is stirred and heated to 60 ° C for two hours. The mixture is then allowed to stand so that it can separate into two layers or 'phases' - that is, an oil phase and water-based or 'aqueous' phase. The surfactant facilitates both the reaction of the sulfuric acid with mineral contaminants dissolved within the oil and the separation of the two phases. Excess acid, water and the reacted contaminants in the oil accumulate in the aqueous phase, which settles to the bottom of the reaction tank and is drained off as slurry.

The oil then undergoes centrifugal separation to remove any remaining fine particles suspended in the oil. Eric samples and tests the oil to ensure the oil meets his customer's specifications for high grade industrial burner oil.

A chemical transformation is required for the removal of mineral contaminants intrinsically dissolved in the used oil. This will also result in the modification of some of the used oil's physicochemical properties. This procedure involves more than the 'mere removal of water and other extrinsic materials' that may be achieved by filtering and de-watering alone.

The process undertaken by Eric results in a 'recycled oil' that is new or different with a distinctive character from the used oil as collected. The high grade industrial burner oil is manufactured or produced for excise purposes

DO I HAVE TO PAY EXCISE ON RECYCLED OIL?

Yes, you must pay excise duty on liquid hydrocarbon products produced through a recycling, manufacturing or other process. [340] This includes products derived from petroleum and non-petroleum sources.

You must also pay excise duty on petroleum based oils (including lubricant/fluid/oil products and greases) and their synthetic equivalents that are recycled for use as oils or greases. [341]

Excise treatment of blended recycled products depends on whether the blend is an excisable blend or a blend that is not excisable.

For more information about blending and excisable blends refer to Chapter 11 - Blending .

You need to pay excise on products derived from a petroleum source (for example, used lubricating oil) even if they do not fit into a specific product subitem of the Schedule. This is because subitem 10.28 of the Schedule covers any product which is not included elsewhere.

Example 13C

Mark's Oil Recycling filters, de-waters and demineralises waste oil (consisting mainly of used engine lubricant oil) to produce a high grade industrial burner fuel. The product does not meet industry product standards for heating oil and is not 'fuel oil' as defined in the Excise Tariff Act.

The product is excisable and classified to subitem 10.28 of the Schedule.

Example 13D

Max's manufacturing company uses waste plastic to produce a fuel that meets the diesel standard. The fuel (diesel) is classifiable to subitem 10.10 of the Schedule.

13.3.2 WHAT RECYCLED FUELS ARE NON-EXCISABLE?

Recycled solvents

A recycled solvent product does not attract excise if: [342]

the product was originally delivered into home consumption under subitems 10.25, 10.26, 10.27, 10.28 or 10.30 of the Schedule
you used the product as a solvent
you recycle it for your own re-use as a solvent, and
when recycled, the product is classified to its original subitem of the Schedule.

Example 13E - solvent recycling that is non-excisable

Peter's Spray Shed uses solvents to clean spray painting equipment on a weekly basis. After two month's use the solvent becomes unusable. The solvents are recycled by Peter's Spray Shed by putting them through a basic filtering process to remove impurities. The recycled solvent is then used for cleaning spray equipment. The recycled solvent does not attract excise duty and Peter's Spray Shed does not require an Excise manufacturer's licence for this recycling.

The exemption does not apply where someone other than the end user recycles the solvent.

Recycled oil that will be used to make a non-excisable blend?

Some blended recycled products are non-excisable. Blended products that are not suitable for use in an internal combustion engine are not excisable. However excise duty must be paid on any excisable constituents of the blend.

Example 13F - blend that is non-excisable

Mark's Recycling produces high grade burner fuel by recycling waste oil. The burner fuel is classifiable to subitem 10.28 of the Schedule.

Mark's Recycling wants to blend the burner fuel with duty-paid diesel to make coal spray oil. Because of the composition of the coal spray oil it cannot be used as a fuel in an internal combustion engine. The coal spray oil is not classified to subitem 10.30 of the Schedule as it cannot be used in an internal combustion engine.

Even though the coal spray oil is not excisable, Mark's Recycling must pay excise duty on the burner fuel that was used in its production. The burner fuel is considered to be delivered into home consumption at the point of blending with the duty paid diesel.

Mark's Recycling will need to lodge an excise return and pay the duty liability on the burner fuel.

13.3.3 HOW DO I WORK OUT THE AMOUNT OF EXCISE DUTY I NEED TO PAY?

The amount of excise you're liable to pay depends on the rate of excise duty that applies to the recycled oil on the day it's delivered into home consumption (including when it's consumed within your licensed premises) and the quantity involved.

What is the rate of excise?

The rate of excise you are liable to pay is set out in the Schedule.

For more information refer to Chapter 6 - Payment of Duty .

Example 13G

An oil recycler filters de-waters and demineralises waste oil consisting mainly of used engine lubricant oil. They produce a liquid hydrocarbon product suitable for use as a high grade industrial burner fuel.

The product does not meet industry product standards for heating oil and is not 'fuel oil' as defined in the Excise Tariff Act. As a consequence the product is classified to subitem 10.28 of the Schedule. The oil recycler pays excise duty at the rate in force on the day the product is delivered into home consumption.

How do I measure the volume of recycled oil?

If you deliver excisable goods into home consumption you must accurately measure volumes of recycled oil. This ordinarily means using calibrated tanks or flow meters.

If you recycle oil for your own use, you can measure the volume of the recycled oil by using:

a properly calibrated flow meter;
a formula that determines the volume of output by using historical data from similar oil, or
any other similarly accurate method that has been approved at the time your licence was issued. [343]

When do I have to pay excise duty?

For more information about payment of duty refer to Chapter 6 - Payment of Duty.

Two examples specific to the recycling industry are as follows.

Example 13H

Mario's Waste Oil Recycling produces 1,000 litres of diesel fuel from waste oil and sells the product for electricity generation.

This product is classified to subitem 10.10 of the Schedule and duty is payable on the diesel at the rate of $0.389 [344] per litre. Mario's Waste Oil Recycling has a periodic settlement permission (PSP). Mario's Waste Oil Recycling declares the 1,000 litres on their weekly excise return and pays excise duty of $389.00.

Example 13I

Pauline's Brickworks holds an excise manufacturer licence to recycle waste oil. It collects 1,500 litres of waste oil and recycles it for use as a high grade burner fuel in their brick kilns.

The product is a petroleum based recycled waste oil that cannot be classified to a specific subitem of the Schedule. This product is classified to subitem 10.28 of the Schedule and excise duty is payable on the recycled waste oil at the rate of $0.389 per litre.

Pauline's Brickworks has a PSP. It declares the 1,500 litres on the weekly excise return that is lodged after the product is used in the brick kilns, and pays excise duty of $583.50.

13.3.4 WHEN CAN I GET AN EXCISE DUTY REMISSION OR REFUND?

In certain situations you may be entitled to a refund or remission of the excise duty paid or payable on recycled oils. [345] These circumstances were introduced at the same time as the introduction of the Product Stewardship for Oil (PSO) scheme to ensure no entitlement to a PSO benefit arises for oil products that are recycled using relatively simple processes and that these recycled oils are not subjected to the excise duty of 8.5 cents per litre under item 15 of the Schedule.

A remission of duty is available for recycled oil products if:

the recycled product is hydraulic oil, brake fluid, transmission oil, transformer oil or heat transfer oil classified to subitem 15.2 of the Schedule
no PSO benefit is payable
the recycled product will be used for the same purpose for which it was used before being recycled (i.e. recycled transmission oil will be used as transmission oil etc), and
the recycled product is delivered into home consumption under a PSP.

A refund of duty is available on recycled oil products if:

the recycled product is hydraulic oil, brake fluid, transmission oil, transformer oil or heat transfer oil classified to subitem 15.2 of the Schedule
no PSO benefit is payable
the product has been used for the same purpose for which it was used before being recycled.

For more information about excise remissions and refunds refer to Chapter 7 - Remissions, refunds, drawbacks and exemptions .

13.3.5 CAN I CLAIM A CREDIT OR BENEFIT FOR THE EXCISE DUTY I HAVE PAID?

If the product of your recycling activities is a taxable fuel [346] (for fuel tax credits purposes) you may be able to claim a fuel tax credit if you use this fuel in your business.

You may also be entitled to a benefit under the PSO program for the oil you recycle.

For more information on:

fuel tax credits visit Fuel schemes essentials on our website at www.ato.gov.au
PSO benefits, refer to Product stewardship for oil program (NAT 3793) on our website at www.ato.gov.au

13.4 PROCEDURES

13.4.1 WHAT DO I DO IF I NEED MORE INFORMATION?

If you need more information on oil recycling contact us as follows:

phone 1300 137 290
fax 1300 130 916
email us at ATO-EXC-Petroleum@ato.gov.au , or
write to us at

Australian Taxation Office

PO Box 3514

ALBURY NSW 2640

We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

13.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO OIL RECYCLING?

The following are the penalties that may apply after conviction for an offence.

Manufacture

If you manufacture excisable fuel products without a manufacturer licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [347]

If you manufacture excisable fuel products contrary to the Excise Act or any conditions specified in your licence, the penalty is a maximum of two years in prison or 500 penalty units. [348]

If you manufacture excisable fuel products at premises that are not specified in your licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [349]

Move, alter or interfere

If you move underbond excisable fuel products without approval, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [350]

Note:

This includes moving underbond excisable fuel products from your premises to any other location or for export.

If your movement of underbond excisable fuel products does not comply with the permission to move the underbond excisable fuel products, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [351]

If you move, alter or interfere with excisable fuel products that are subject to excise control , without permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [352]

Deliver

If you deliver excisable fuel products into home consumption contrary to your permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [353]

Records

If you do not keep, retain and produce records in accordance with a direction under section 50 of the Excise Act, the penalty is a maximum of 30 penalty units.

Directions

If you do not comply with a direction in regard to what parts of the factory can be used for various matters, the penalty is a maximum of 10 penalty units. [354]

False or misleading statements

If you make a false or misleading statement, or an omission from a statement in respect of duty payable on particular goods, to us, a penalty not exceeding the sum of 50 penalty units and twice the amount of duty payable on those goods. [355]

Evade

If you evade payment of any duty which is payable, the maximum penalty is 5 times the amount of duty on the excisable fuel products, or where a court cannot determine the amount of that duty the penalty is a maximum of 500 penalty units. [356]

Facilities etc.

If you do not provide all reasonable facilities for enabling us to exercise our powers under the Excise Act, the penalty is a maximum of 10 penalty units. [357]

If you do not provide sufficient lights, correct weights and scales, and all labour necessary for weighing material received into, and all excisable fuel products manufactured in, your factory and for taking stock of all material and excisable fuel products contained in your factory, the maximum penalty is 10 penalty units. [358]

If we mark or seal excisable fuel products or fasten, lock or seal any plant in your factory and you alter, open, break or erase the mark, seal, fastening or lock, the maximum penalty is 50 penalty units. [359]

13.6 TERMS USED

Excisable fuel products

Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are manufactured or produced in Australia and listed in the Schedule.

As these guidelines deal with fuel products, we have used the term excisable fuel products.

Excisable fuel products include:

petrol
diesel
renewal diesel
crude petroleum oil
condensate
heating oil
kerosene
fuel ethanol
biodiesel
compressed natural gas (CNG)
liquefied natural gas (LNG); and
liquefied petroleum gas (LPG.

Excise control

Goods are subject to excise control from the point of manufacture until they have been delivered into home consumption or for export.

Goods subject to excise control cannot be moved, altered or interfered with except as authorised by the Excise Act.

Excise return

An excise return [360] is the document that you use to advise us:

the volume of excisable fuel products that you have delivered into home consumption during the period designated on your PSP, or
the volume of excisable fuel products that you wish to deliver into home consumption following approval.

Home Consumption [361]

'Home consumption' is the term used in the Excise Act and this guide to describe when excisable fuel products are released into the Australian domestic market for consumption. The term used in the legislation is 'deliver for home consumption'.

Normally this will be by delivering the goods away from licensed premises but includes using those goods within the licensed premises (for example using fuel to run equipment in your licensed premises). It does not include goods delivered for export or the movement of goods underbond (see definition below) to another licensed site.

The term 'home consumption' is not defined in the Excise Act and there is no definitive case law that looks at the issue in question. However there are several cases where issues closely related to it are considered. [362]

The conclusion drawn from those cases is that 'home consumption' refers to the destination of goods as being within Australia as opposed to exporting them.

Penalty units

A penalty unit is specified in section 4AA of the Crimes Act 1914 and, at the time of writing, is $210.

Refund

A refund is the repayment of duty that has already been paid.

Remission

A remission of excise duty extinguishes the liability for duty that was created at the point of manufacture.

Section 50 direction

This is a written instruction issued under section 50 of the Excise Act to a licensed manufacturer, or proprietor of licensed premises, to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand by us.

Underbond

This is an expression not found in excise legislation but it is widely used to describe goods that are subject to excise control. Excisable goods that are subject to excise control are commonly referred to as 'underbond goods' or as being 'underbond'. This includes goods that have not yet been delivered into home consumption and goods moving between premises under a movement permission.

13.7 LEGISLATION (quick reference guide)

In this chapter we have referred to the following legislation:

Excise guidelines for the fuel industry

	Date:	Version:
	1 July 2006	Original document
	1 April 2015	Updated document
	12 July 2017	Updated document
You are here	11 December 2017	Updated document
	4 June 2021	Updated document
	1 July 2024	Current document

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Excise guidelines for the fuel industry

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13 OIL RECYCLING

13.1 PURPOSE

13.2 INTRODUCTION

13.2.1 WHAT IS OIL RECYCLING?