Fuel Tax: apportionment of fuel and statistical sampling.

For the apportionment of fuel, can statistical sampling be used 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)?

Yes. The Commissioner considers the apportionment of fuel based on statistical sampling provides a fair and reasonable basis for working out the quantity of fuel acquired for use in carrying on an enterprise under the FTA.

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 acquires diesel fuel in bulk for use in a fleet of heavy vehicles, equipment and 4WD vehicles with a gross vehicle mass of less than 4.5 tonnes (light vehicles).

The entity is entitled to a fuel tax credit for fuel used in the light vehicles in eligible off-road activities, and has no entitlement to a fuel tax credit for fuel used in the light vehicles for travelling on public roads.

As the ratio of fuel used for an eligible purpose to fuel used for an ineligible purpose is fairly constant, the entity decides to use a variation of the percentage use method (as described in Fuel Tax Determination FTD 2006/1).

Based on the high number of light vehicles in the fleet and their pattern of use, statistical sampling is employed to establish the quantity of fuel used in the light vehicles in eligible off-road activities and for travelling on a public road.

The sample size is determined using a 95confidence level and a tolerable error of 10

The entity selects a random but representative sample of its light vehicles.

Using the representative sample of its light vehicles and log book records, the entity works out the quantity of fuel acquired for use in its activities for a sample period of four weeks.

The entity calculates the percentage rate for fuel used in its eligible activities and uses that rate to calculate its entitlement to a fuel tax credit.

The entity keeps detailed records of its fuel usage and its calculations during the sample period to substantiate entitlement.

Section 41-5 of the FTA states: You are entitled to a fuel tax credit for taxable fuel that you acquire or manufacture 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 an entity's entitlement to a fuel tax credit, the FTA does not specify any method to calculate the quantity of taxable fuel that an entity acquires for use in carrying on its 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 an entity can use any fair and reasonable method to work out the quantity of fuel for use in carrying on its enterprise.

FTD 2006/1 also explains that if, in the course of carrying on an enterprise, an entity uses one or more types of fuel in one or more eligible activities the entity should calculate the quantity of each fuel type used in each of the respective activities separately. In doing so the entity may apply a different calculation method to each of these eligible activities and fuel types.

An entity needs to keep appropriate records that detail how the quantity of fuel was worked out in order to show that its method is fair and reasonable and appropriate to its circumstances.

The Commissioner has provided examples of methods that he considers may be fair and reasonable to work out the quantity of fuel. However, an entity is not limited to the methods set out in FTD 2006/1. An entity can use any method that is fair and reasonable in their circumstances, for example a variation of the percentage use method contained in FTD 2006/1.

In this case, statistical sampling of a fleet of light vehicles over a four week period is used to work out the quantity of fuel acquired for use in the various activities to apportion fuel between eligible and ineligible use.

The appropriateness of the statistical sampling technique is determined by consideration of the specific circumstances of each particular case.

In this context, the Commissioner will accept the use of statistical sampling where: • an adequate statistical sampling design has been employed • the sample size is determined on a confidence interval of 95and a tolerable error of 10 • the sample is a random and representative sample of the population from which it has been drawn, and • the data obtained from the sample is correct.

The Commissioner considers the use of a percentage use method which employs an acceptable statistical sampling technique to determine the percentage rate for fuel acquired for use in carrying on an enterprise is fair and reasonable basis for calculating the amount of taxable fuel for which you are entitled to a fuel tax credit.