Issue
Is an entity entitled to a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 (FTA) for taxable fuel it acquires for use in a clip-on generator set to power a refrigerated container (reefer)?
Decision
Yes. An entity that acquires taxable fuel for use in a clip-on generator set to power a reefer is entitled to a fuel tax credit under section 41-5 of the FTA.
Facts
An entity operates a transport enterprise and is registered for GST.
The entity acquires taxable fuel for use in a clip-on generator set to power a reefer.
A reefer is a refrigerated container that ensures the quality of perishable goods during transportation by maintaining the desired temperature of its contents.
In this case, the reefer has an integral refrigeration unit that sources electricity for its operation from a clip-on diesel generator set attached to the reefer.
The clip-on generator set has its own fuel tank.
The entity transports perishable goods in the reefer by a combined use of road, rail and sea transport within one journey to the final destination of the goods.
While the reefer is being transported by road, rail or sea transport, or awaiting transportation in a loading bay, at a rail yard or on a wharf, the reefer uses electricity generated by the clip-on diesel generator set.
The disentitlement rules in Subdivision 41-B of the FTA do not apply.
Reasons for Decision
Section 41-5 of the FTA provides that an entity is entitled to a fuel tax credit for taxable fuel it acquires or manufactures in, or imports into Australia to the extent that it does so for use in carrying on its enterprise.
In this case, the operation of the integral refrigeration unit requires electricity which is sourced from a clip-on generator set attached to the reefer. The taxable fuel acquired by the entity for use in the clip-on generator is for a use in carrying on its enterprise and therefore a fuel tax credit entitlement exists.
Items 10 and 11 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Fuel Tax Transitional Act) provide restrictions on entitlement to fuel tax credits for taxable fuel acquired, manufactured or imported between 1 July 2006 and 30 June 2012. However, subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the Fuel Tax Transitional Act provides that items 10 and 11 of Schedule 3 to the Fuel Tax Transitional Act respectively do not apply if an entity acquires, manufactures or imports taxable fuel for use by the entity in generating electricity. Effectively this means that a fuel tax credit is available under section 41-5 of the FTA for taxable fuel acquired, imported or manufactured on or after 1 July 2006 for use in carrying on an enterprise and the use of that fuel is in generating electricity.
The expression 'generating electricity' referred to in subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the Fuel Tax Transitional Act has not been qualified or specifically defined for the purposes of the FTA or Fuel Tax Transitional Act. The Revised Explanatory Memorandum (EM) to the Fuel Tax Bill 2006 and the Fuel Tax (Consequential and Transitional Provisions) Bill 2006 has not expressly stated that a narrow reading of the expression generating electricity is required, rather the explanation in paragraph 1.22 of the EM provides that a fuel tax credit entitlement will be available to businesses for fuel acquired or manufactured in, or imported into, Australia for use in electricity generation from 1 July 2006.
Therefore, an activity that is considered to be generating electricity in the ordinary sense of that expression will satisfy subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the Fuel Tax Transitional Act. The Commissioner accepts that a clip-on generator set to power a reefer is 'generating electricity' in the ordinary sense of that expression.
It follows that taxable fuel used in a clip-on generator set to power a reefer is used for generating electricity under subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the Fuel Tax Transitional Act.
Therefore, the entity is entitled to a fuel tax credit under section 41-5 of the FTA for taxable fuel acquired for use in the clip-on generator set to generate electricity in carrying on its enterprise. Note: The reasoning in the above decision only applies to reefers that are powered by electricity. This ATO ID does not apply to mechanically powered reefers.