Issue
Where an entity's principal purpose is the retail sale of eligible goods or services, does the use of diesel fuel to generate electricity at particular premises where such sales do not occur qualify for an off-road credit under paragraph 53(4)(a) of the Energy Grants (Credits) Scheme Act 2003 (EGCS Act)?
Decision
No. Where an entity's principal purpose is the retail sale of eligible goods or services and it uses diesel fuel to generate electricity at particular premises where such sales do not occur it will not qualify for an off-road credit under paragraph 53(4)(a) of the EGCS Act.
Facts
An entity carries on a business that consists of a number of activities, including the retail sale of goods and services (other than electricity).
The entity purchases diesel fuel to generate electricity at a particular site.
The activities at this site relate to the goods and services that the entity sells to its consumers.
The entity does not sell goods or services to its consumers from this site.
The entity purchased diesel fuel between 1 July 2003 and 30 June 2006, and intends to claim any entitlement to an off-road credit under the EGCS Act for that fuel as a decreasing fuel tax adjustment in a tax period ending before 1 July 2009.
Reasons for Decision
Subsection 53(1) of the EGCS Act states that an entity is entitled, subject to certain prescribed conditions and restrictions, to an off-road credit if it purchases diesel fuel for a use that qualifies.
Paragraph 53(4)(a) of the EGCS Act 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.
In this instance, we are only focussing on the requirements of subparagraph 53(4)(a)(i) of the EGCS Act.
It is necessary to determine, in this context, what is meant by the term 'enterprise'.
The definition of 'enterprise' in section 4 of the EGCS Act refers to the meaning given by section 38 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) which states: 'An enterprise' is an activity, or series of activities, done: (a) in the form of a business; or ...
The meaning of 'an enterprise' in section 38 of the ABN Act is discussed in Miscellaneous Taxation Ruling MT 2000/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (ABN). Paragraphs 56 to 59 of MT 2000/1 explain the phrase 'activity or series of activities' as follows: 56. An enterprise may comprise one activity or a series of activities. ... 57. The ABN Act does not define an 'activity, or series of activities'. In the absence of a statutory definition, an 'activity' is essentially an act or series of acts that an entity chooses to do. ... 58. Where there are a number of separate activities, the entity may be carrying on more than one enterprise. ...
However, it is also necessary to consider the meaning of the term 'enterprise' in the context of the EGCS Act.
Subparagraph 53(4)(a)(i) of the EGCS Act requires that we consider the enterprise being carried on at those premises, that is the same premises where the electricity is being generated. Thus, when we consider the meaning of 'enterprise', as explained above, it is the activity being carried out at the particular premises that is being looked at. Therefore, the retail sale of eligible goods or services or the provision of hospitality must be the principal purpose of the enterprise that the entity carries on at the premises. It is not sufficient that the principal purpose of the business of the entity as a whole is the retail sale of eligible goods or services or the provision of hospitality.
The energy grants credit scheme was preceded by the diesel fuel rebate scheme (DFRS) and, in part, maintained entitlements equivalent to the DFRS. This is confirmed in paragraph 3.54 of the Explanatory Memorandum to the Energy Grants (Credits) Scheme Bill 2003. It is, therefore, appropriate to look at the extrinsic material for the amendments that introduced the DFRS equivalent to subsection 53(4) of the EGCS Act.
The Explanatory Memorandum to the Diesel Fuel Rebate Scheme Amendment Bill 2002 explained the provision as follows: 1.1 The amendment to insert paragraph 164(1)(ad) into the Customs Act extends the DFRS to retail and hospitality businesses in remote areas who generate electricity for their own use when there is no ready access to a commercial supply of electricity. [Schedule 1, Part 1, item 1] 1.2 To be eligible for a rebate the fuel must be used at premises where the retail or hospitality business is carried on. The fuel does not need to be used in the premises, but the use of the fuel must nevertheless be geographically proximate to the premises. The location of the plant using the fuel must be in sufficient proximity to the premises as to enable it to be identified with the premises. [Schedule 1, Part 1, item 1]
Accordingly, the Commissioner considers that, having regard to the purpose of the provision, that subparagraph 53(4)(a)(i) of the EGCS Act requires that the principal purpose of the activity carried on at the particular premises is the retail sale of eligible goods or services or the provision of hospitality.
Whilst the business conducted by the entity as a whole may involve making retail sales or providing hospitality, that must be the principal purpose of the enterprise that they carry on at the premises.
In this case, the retail sale of goods or services is not the principal purpose of any enterprise that the entity carries on at the premises where the electricity is generated. As such, the entity is not entitled to an on off-road credit for the diesel fuel purchased to generate electricity at the premises.