Issue
Has an entity purchased diesel fuel for use by them as required by subsection 53(1) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) if the entity provides the fuel to a contractor for no charge, and the contractor uses the fuel in their equipment while providing services to the entity?
Decision
Yes. An entity has purchased diesel fuel for use by them as required by subsection 53(1) of the EGCSA if the entity provides the fuel to a contractor for no charge, and the contractor uses the fuel in their equipment while providing services to the entity.
Facts
An entity obtains the services of a contractor.
The contractor uses its own equipment to provide services to the entity.
Under the terms of the agreement between the parties, the entity purchases fuel from a fuel supplier and provides the fuel to the contractor for use in the provision of services to the entity.
The entity does not charge the contractor for the fuel used in the equipment.
Reasons for Decision
Subsection 56(1) of the EGCSA provides that if an entity is entitled to an on-road credit or an off-road credit, the entity is entitled to an energy grant.
Subsection 53(1) of the EGCSA provides that an entity is, subject to certain conditions, entitled to an off-road credit if they purchase diesel fuel for a 'use by them' that qualifies.
The Administrative Appeals Tribunal (AAT) considered the issue of 'use' in Riviera Nautic Pty Ltd v. Federal Commissioner of Taxation [2002] AATA 657 ( Riviera Nautic Case ). The findings in the Riviera Nautic Case remain relevant as this case was decided in relation to the Diesel Fuel Rebate Scheme which was the precursor to the Energy Grants (Credits) Scheme and contained similar provisions.
Riviera Nautic operated a fleet of yachts and motor cruisers which it hired to customers to drive themselves around the Gippsland Lakes. Riviera Nautic purchased bulk diesel fuel and filled the tanks of each vessel prior to delivering the vessels to its customers. They charged their customers a fee for the use of the vessel. No separate charge was made for the fuel regardless of the quantity used.
On the issue of 'use' the AAT found that it was a term of broad meaning. They said: 37 I was puzzled during the hearing by what seemed to be the very narrow meaning of the word 'use' advanced by Mr Sest. I suggested that the appropriate analysis appeared to be that both Riviera Nautic and its clients use the fuel purchased by Riviera Nautic in marine transport, but only Riviera Nautic does so 'in the course of carrying on an enterprise'. 38 I consider that there is an analogy between a restaurant purchasing and using food, to prepare meals, and Riviera Nautic purchasing and using fuel to hire out fully fuelled boats. They are both carrying on an enterprise. The fact that the restaurant's customers consume the food or that the clients of Riviera Nautic cause the fuel to be consumed by using the boat's engine to transport themselves on the Gippsland Lakes, does not mean that the food and fuel are not used by the restaurant and Riviera Nautic in the course of carrying on an enterprise. The business of the restaurant is to use food to offer customers food. The business of Riviera Nautic is to provide marine transport including fuel to hirers. Another example would be a hotel which purchases and uses soaps and shampoos to provide those products in guests' bathrooms. The products are used by the hotel, and are also used by the guests.
In this case, the entity obtains the services of a contractor, who also provides appropriate equipment. As the entity provides and pays for all fuel used in the contractor's equipment, and the contractor uses the equipment in carrying out the activities specified by the entity, any 'use' of the diesel fuel is by the entity in the course of carrying on its enterprise.
Accordingly, an entity has purchased diesel fuel for use by them as required by subsection 53(1) of the EGCSA if the entity provides the fuel to a contractor for no charge and the contractor uses the fuel in their equipment while providing services to the entity.