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Does an entity have an increasing fuel tax adjustment, pursuant to Division 44 of the Fuel Tax Act 2006 (FTA), when they have a decreasing fuel tax adjustment pursuant to item 9 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Fuel Tax Transitional Act) and they subsequently use the fuel for a purpose that would not have entitled them to an on-road or off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Yes. An entity, has an increasing fuel tax adjustment when they have a decreasing fuel tax adjustment pursuant to item 9 of Schedule 3 to the Fuel Tax Transitional Act, and they subsequently use the fuel for a purpose that would not have entitled them to an on-road or off-road credit.

An entity purchased on-road diesel fuel between 1 July 2003 and 30 June 2006 and was entitled to an on-road credit under the EGCSA.

The entity has not previously made a claim for payment of an energy grant in relation to the fuel under section 15 of the Product Grants and Benefits Administration Act 2006 (PGBAA).

The entity included the amount of the credit as a decreasing fuel tax adjustment in their business activity statement for a tax period that ends before 1 July 2009.

The entity subsequently used the relevant fuel for a purpose for which it would not have been entitled to an on-road or off-road credit under the EGCSA.

Subitem 9(1) of Schedule 3 to the Fuel Tax Transitional Act provides that an entity has a decreasing fuel tax adjustment if it would otherwise have been able to claim an energy grant in respect of fuel purchased between 1 July 2003 and 30 June 2006, provided they have not made a claim for the energy grant under the PGBAA.

Divisions 41-A and 42 of the FTA provide that entities have an entitlement to a fuel tax credit for taxable fuel that they acquire, import into Australia or manufacture to the extent they do so for certain purposes. This entitlement to a fuel tax credit arises at the time of acquisition, importation or manufacture so an entity must estimate the extent of their entitlement.

If the entity's ultimate use of the fuel, if known at the time of acquisition, importation or manufacture, would have resulted in a different entitlement to fuel tax credits, subsection 44-5(1) of the FTA provides that the entity has a fuel tax adjustment. Fuel tax adjustments can be either increasing fuel tax adjustments or decreasing fuel tax adjustments.

The scope of subsection 44-5(1) of the FTA is broadened by subitem 9(4) of Schedule 3 to the Fuel Tax Transitional Act, which provides that if an entity has a decreasing fuel tax adjustment under item 9, then Division 44 of the FTA applies as if the reference to a fuel tax credit were instead a reference to an on-road credit or an off-road credit as the case requires.

When subitem 9(4) of Schedule 3 to the Fuel Tax Transitional Act is read in conjunction with subsection 44-5(1) of the FTA, the entity has a fuel tax adjustment if the on-road credit that it claimed (in the form of a decreasing fuel tax adjustment) is higher or lower than the on-road credit to which it would have been entitled based on its actual use of the fuel.

As the decreasing fuel tax adjustment attributed by the entity in respect of its on-road credit entitlement has subsequently been found to be higher than the on-road credit to which the entity would have been entitled based on the actual use of the fuel, the entity has an increasing fuel tax adjustment.