Issue
Is diesel fuel purchased for use (and used) in the construction of a car park and civil works on hospital grounds, a qualifying use under paragraph 53(4)(c) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?
Decision
No. Diesel fuel purchased for use (and used) in the construction of a car park and civil works on hospital grounds is not a use that qualifies under paragraph 53(4)(c) of the EGCSA.
Facts
A hospital entered into a commercial contract with a building construction company (the builder) for the following construction work: (a) a car park (b) the addition of a new wing to an existing hospital building; and (c) a separate (new) building.
All the construction works will be on hospital grounds.
Diesel fuel is purchased by the builder for use (and used) in undertaking the construction work.
Reasons for Decision
Section 53 of the EGCSA provides that, subject to the conditions and restrictions specified in the Energy Grants (Credits) Scheme Regulations 2003, an entity is entitled to an off-road credit if they purchase or import into Australia off-road diesel fuel for a qualifying use.
Subsection 53(4) of the EGCSA lists a number of uses that qualify. One use, set out in paragraph 53(4)(c) of the EGCSA is: use at a hospital or nursing home or at any other institution providing medical or nursing care.
In this instance, the diesel fuel is purchased for use (and used) in the construction of a car park and other civil works on hospital grounds.
The Energy Grants (Credits) Scheme, which replaced the Diesel Fuel Rebate Scheme (DFRS), maintained the entitlements that were available under the DFRS.
The DFRS was introduced under the Diesel Fuel Taxes Legislation Amendment Bill 1982. The Second Reading Speech for the Bill explained that: The users of diesel fuel in the categories defined in clause 5 of the Bill who use the fuel for 'off road' purposes are eligible for a rebate of the duty paid on the diesel fuel used in their operations ... The categories I have just referred to relate to the use of diesel fuel in the agriculture, mining, forestry and fishing industries, in domestic premises, hospitals, aged persons homes and nursing homes ... (emphasis added)
Having regard to the above, an entitlement to an energy grant under paragraph 53(4)(c) of the EGCSA will depend on whether the fuel is purchased for use at and for the purposes of a hospital, that is, in its operations.
It must be determined whether the diesel fuel is purchased for use 'at' the hospital. The Federal Court in the case of the Collector of Customs, Tasmania v. Flinders Island Community Association (1985) 7 FCR 205 (Flinders Island case) provides guidance in determining whether fuel purchased is for use 'at' relevant premises. In that case an Association operated a generator, which supplied electricity to nearby houses located on a housing estate. The Federal Court found that in order to meet the requirement that the fuel is for use 'at' residential premises, there must be a close connection between the use (that is, where the generator is) and the residential premises and that the generation take place in physical proximity to the premises.
In Collector of Customs v. Rottnest Island Authority (1994) 48 FCR 177 ( Rottnest Island case ), the Federal Court accepted the view put forward in the Flinders Island case but further determined that the generating plant should be '... in sufficient proximity to the premises to enable it reasonably to be identified with the premises. It must be appurtenant to the premises and coherent with them.'
In Ergon Energy Corporation Limited v. Commissioner of Taxation (2006) 153 FCR 551; (2006) 64 ATR 130, the Federal Court after examining the propositions and findings in the Flinders Island and Rottnest Island cases accepted the view that the legislation provided for locational and purposive tests to be considered by reference to the circumstances of the individual case. The Court also concluded it was wrong to consider separately whether the fuel was used at the relevant premises from the question of the purpose contemplated by the legislative provision.
The Commissioner considers that the determination of what is a sufficiently close connection will depend on the individual facts and circumstances of each case.
As the construction activities are on the hospital grounds, and the car park and other works are in sufficient proximity and identifiable with the hospital, we consider the locational test of 'at' the hospital is met.
In explaining when diesel is for use in the operations of institutions (such as hospitals) within paragraph 53(4)(c) of the EGCSA, the tribunal member in Rebmik Contactors P/L v. Commissioner of Taxation [2008] AATA 335 ( Rebmik ) said the following at paragraph 21: Although the purposes to which those institutions may use the diesel is not limited, nevertheless, to be a qualifying use it must be for activities conducted by those institutions. In other words it must be for purposes of those existing institutions ...
The Commissioner considers that in having regard to the Second Reading Speech in relation to the Diesel Fuel Taxes Legislation Amendment Bill 1982 and the decision of the Administrative Appeals Tribunal in Rebmik that paragraph 53(4)(c) of the EGCSA is limited to diesel fuel for use (and used) in the ongoing day to day purposes and operations of the institution. Where the institution is a hospital, then, for the purposes of paragraph 53(4)(c) of the EGCSA, there will only be an entitlement to an off-road credit (and an energy grant) for diesel fuel purchased for use (and used) in the ongoing day to day purposes and operations of the hospital, for example, in lighting and heating.
As the activities described in the facts are construction activities they are not activities that can be described as being purposes of the hospital. They are more appropriately regarded as preparatory to the establishment or enlargement of a hospital, which, when complete will be available for use in the ongoing day to day and general operations of the hospital.
Therefore, diesel fuel purchased for use (and used) in those construction activities is not purchased for use (and used) for purposes of the hospital.
In summary, though the use of diesel fuel is for the purposes of the construction activities at a hospital, that is, adjacent to or on the grounds of a hospital, it is not purchased for use in the operations of the hospital. On this basis the statutory requirement that diesel fuel be purchased for use at a hospital is not satisfied. Therefore, there is no entitlement under paragraph 53(4)(c) of the EGCSA for an off-road credit (and to an energy grant) for diesel fuel purchased for use (and used) in the construction activities.