Issue
For the apportionment of fuel, can reference be made to an average hourly fuel consumption figure for the purposes of working out the quantity of fuel acquired for use in carrying on an enterprise under the Fuel Tax Act 2006 (FTA)?
Decision
Yes. The Commissioner considers the apportionment of fuel by reference to an average hourly fuel consumption figure provides a fair and reasonable basis for working out the quantity of fuel acquired for use in carrying on an enterprise under the FTA.
Facts
An entity carries on an enterprise within the meaning of section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 , and is registered for GST.
The entity lodges monthly business activity statements.
An entity uses front end loaders of the same make and model with a gross vehicle mass greater than 4.5 tonnes in carrying out work in agricultural and road construction activities.
Before 1 July 2012 the entity acquires diesel fuel in bulk for use in carrying on its enterprise, including for use in the front end loaders.
The entity is entitled to a full fuel tax credit for fuel for use in eligible agricultural activities, and to a half credit for fuel for use in the road construction activities.
The entity uses its sales invoices itemising actual hours of work completed by each front end loader over a four week period (in summer and winter) and the quantity of actual fuel used in the period to determine an average hourly fuel consumption of the front end loaders in carrying out work in the agricultural and road construction activities.
To apportion fuel between a full fuel tax credit and a half credit, the entity works out the quantity of fuel acquired for use in each activity by multiplying the front end loader's total operating hours for each activity by the respective average hourly fuel consumption figure.
Reasons for Decision
Section 41-5 of the FTA of the states: You are entitled to a fuel tax credit for taxable fuel that you acquire or manufacturer in, or import into, Australia to the extent that you do so for use in carrying on your enterprise.
For the purposes of working out your entitlement to a fuel tax credit, the FTA does not specify any method to calculate the quantity of taxable fuel that you acquire for use in carrying on your enterprise or to apportion the amount of fuel where the acquisition of the fuel gives rise to differing amounts of fuel tax credit.
In Fuel Tax Determination FTD 2006/1, which deals with calculation methods, the Commissioner has determined that you can use any fair and reasonable method to work out the quantity of fuel for use in carrying on your enterprise.
FTD 2006/1 also explains that if, in the course of carrying on your enterprise, you use one or more types of fuel in one or more eligible activities you should calculate the quantity of each fuel type used in each of the respective activities separately. In doing so you may apply a different calculation method to each of these eligible activities and fuel types.
You need to keep appropriate records that detail how the quantity of fuel was worked out in order to show that your method is fair and reasonable and appropriate to your circumstances.
In this case, the entity established the average hourly fuel consumption of the front end loaders in agricultural and road construction activities based on records of actual fuel use and operating times over a four week period. The entity has also taken steps to determine the average hourly fuel consumption figures for different climatic conditions to ensure that the average figure reflects the operation of the front end loaders in all operating environments.
The manufacturer's performance guide indicates the hourly fuel consumption for the application of the front end loaders in the various working conditions (that is, heavy, medium or light) and under different weather conditions. The average hourly fuel consumption calculated by the entity reflects (but in this case does not equal) the hourly fuel consumption indicated in manufacturer's performance guide.
The Commissioner considers that, apportionment of fuel by reference to the average hourly fuel consumption of a front end loader in various working and climatic conditions to be a fair and reasonable basis for calculating the entity's entitlement to a fuel tax credit in relation to the front end loaders for fuel for use in agricultural and road construction activities. Note: The above does not imply that the hourly fuel consumption for an entity's equipment or vehicle must always reflect the hourly fuel consumption indicated in a manufacturer's performance guide.