Issue
Does an entity that provides the use of equipment and an operator to farmers, sell or otherwise dispose of diesel fuel for the purposes of paragraph 55(b) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA), when it is reimbursed (either with money or with fuel) by a farmer for the fuel used in the equipment?
Decision
No, an entity that provides the use of equipment and an operator to farmers, does not sell or otherwise dispose of diesel fuel for the purposes of paragraph 55(b) of the EGCSA when it is reimbursed (either with money or with fuel) by a farmer for the fuel used in the equipment.
Facts
The entity provides the use of equipment and an operator to farmers under contract. The equipment is used in eligible agricultural activities on agricultural properties.
The entity supplies the fuel that is used in the equipment. The farmer reimburses the entity for the fuel used in the equipment at the end of the contract (in money or fuel) under the terms of the contract.
Reasons for Decision
Subsection 56(1) of the EGCSA provides that a person is entitled to an energy grant if they are entitled to an on-road or off-road credit. Subsection 53(1) of the EGCSA provides that a person is entitled to an off-road credit if they purchase diesel fuel for a use by them that qualifies.
Subsection 53(2) of the EGCSA provides that use in primary production is a use that qualifies.
Section 21 of the EGCSA says 'primary production' means agriculture, fishing or forestry.
However, section 55 of the EGCSA provides that an off-road credit is denied if fuel is subsequently used for an ineligible purpose, sold or otherwise disposed of, or lost.
The operator has purchased the diesel fuel in the generator for use in eligible agricultural activities. Therefore, the operator will be entitled to an off-road credit for diesel fuel purchased and used in agriculture, as long as the fuel has not been used for an ineligible purpose, sold or otherwise disposed of, or lost. In this instance, the operator has not used the fuel for an ineligible purpose or lost it. The remaining issue is whether the operator has sold or otherwise disposed of the fuel.
The Administrative Appeals Tribunal considered the issues of 'use' and to a lesser extent 'sale or disposal' in Re Riviera Nautic Pty Limited v. Federal Commissioner of Taxation [2002] AATA 657; (2002) 50 ATR 1106 (Riviera Nautic) which concerned the hire of a houseboat. The case was decided in relation to the Diesel Fuel Rebate Scheme which was the precursor to the Energy Grants (Credits) Scheme and was administered under the Excise Act 1901 and the Customs Act 1901. In that case, the AAT considered that in determining whether something has been sold, one should consider whether property in it is intended to pass. Dwyer J. said that it was not as if the hirer of a house boat could 'siphon off and take home any unused fuel'. Dwyer J. likened the hiring of the vessel to the hiring of a car. He concluded that the owner of a car does not 'relinquish, part with or get rid of' the car merely because they make it available for hire. The same logic would apply to the fuel supplied in the entity's equipment.
The operator has purchased the fuel and used it in powering the equipment. There is nothing to suggest that there is any intention that the property in the fuel will pass to the farmer. Following the principles in Riviera Nautic, the operator has not sold or otherwise disposed of the fuel for the purposes of paragraph 55(b) when it is reimbursed for the fuel it used in the equipment.