Issue
Is the use of diesel fuel to generate electricity at the premises of an enterprise that has as its principal purpose the retail sale of goods or services, a use that qualifies for an off-road credit under paragraph 53(4)(a) of the Energy Grants Credits Scheme Act 2003 (EGCSA) not withstanding that the entity that uses the diesel fuel (and generates the power) is not the entity conducting the retail/hospitality enterprise?
Decision
Yes. The use of diesel fuel to generate electricity at the premises of an enterprise that has as its principal purpose the retail sale of goods or services is a use that qualifies for an off-road credit under paragraph 53(4)(a) of the EGCSA notwithstanding that the entity that uses the diesel fuel (and generates the power) is not the entity conducting the retail/hospitality enterprise.
Facts
An entity (the generating company) is contracted to another entity (the retail/hospitality provider) that has, as its principal purpose, the retail sale of goods or services or the provision of hospitality.
The generating company is contracted by the retail/hospitality provider to supply and operate generators which produce electricity for use in the retail/hospitality business.
Under the agreement, the generating company is required to maintain, operate and fuel the generators. The generators are operated on the retail/hospitality provider's premises.
The retail/hospitality provider does not have access to power from an electrical grid.
Reasons for Decision
Subsection 53(1) of the EGCSA states that an entity is entitled, subject to certain prescribed conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies.
Paragraph 53(4)(a) of the EGCSA provides that the following is a use that qualifies:
use at particular premises to generate electricity for use in the course of carrying on, at those premises, an enterprise that: (i) has, as its principal purpose, the retail sale of goods or services (other than electricity) or the provision of hospitality; and (ii) does not have, at those premises, ready access to a commercial supply of electricity.
This paragraph effectively imposes three requirements for eligibility: • the diesel fuel must be used at particular premises to generate electricity • the resultant electricity must be used in the course of carrying on at those premises, an enterprise that has as its principal purpose the retail sale of goods or services (other than electricity) or the provision of hospitality, and • the enterprise must not have, at those premises, ready access to a commercial supply of electricity.
In this instance, the generators are being operated on the retail/hospitality provider's premises. The electricity generated is used by the retail/hospitality provider in the course of its enterprise that has, as its principal purpose, the retail sale of goods or services (other than electricity) or the provision of hospitality. Therefore, the first two requirements are satisfied and the use of the diesel fuel will be eligible for an off-road credit under paragraph 53(4)(a) of the EGCSA provided the enterprise does not have, at the retail/hospitality premises, ready access to a commercial supply of electricity.
In this instance, the retail/hospitality provider does not have a commercial supply of electricity in the form of a grid system available to it. Although it could be argued that the generating company is providing their services in a commercial setting, we do not consider the mere provision and maintenance of generators at a client's business premises to constitute a commercial supply of electricity.
In essence, the retail/hospitality provider is generating electricity in the manner and scale expected from an entity that does not have access to an electricity grid. The only difference is that they have engaged external expertise and equipment to assist them in generating this power. As the retail/hospitality provider does not have access to a commercial supply of electricity, the final requirement of paragraph 53(4)(a) of the EGCSA is satisfied.
Paragraph 53(4)(a) of the EGCSA imposes three requirements, all of which are satisfied. Therefore, the use of diesel fuel to generate electricity for use by the retail/hospitality provider is a use that qualifies for an off-road credit under paragraph 53(4)(a) of the EGCSA, notwithstanding that the fuel is used (and the electricity generated) by an entity other than the retail/hospitality provider.