Issue
Is an entity's entitlement to a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 ( FTA), for taxable fuel it acquires between 1 July 2006 and 30 June 2012 for use in a refrigerated container (reefer) with an integral mechanically-driven compressor while the reefer is being transported by a vessel, negated or restricted by the operation of items 10 or 11 of Schedule 3 of the Fuel Tax (Consequential and Transitional Provisions) Act 2006 ( Fuel Tax Transitional Act)?
Decision
No. An entity's entitlement to a fuel tax credit is not negated or restricted because the fuel is for use in marine transport which is a use that qualified for an off-road credit under the Energy Grants Credit Scheme Act 2003 ( Energy Grants Act) and therefore subitems 10(5) and 11(5) of Schedule 3 of the Fuel Tax Transition Act apply.
Facts
An entity operates a marine transport enterprise and is registered for GST.
The entity acquires taxable fuel, between 1 July 2006 and 30 June 2012 for use in a reefer with an integral mechanically-driven compressor.
A reefer is a refrigerated container that ensures the quality of perishable goods during transportation by maintaining the desired temperature of its contents.
The reefer has its own fuel tank.
The reefer is placed on the vessel for transportation to its destination.
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 reefer is used by the entity to transport perishable goods to the desired destination using taxable fuel in the reefer with an integral mechanically-driven compressor. Thus, the taxable fuel acquired by the entity is for a use in carrying on its enterprise and therefore a fuel tax credit entitlement exists.
However, items 10 and 11 of Schedule 3 of the Fuel Tax Transitional Act provide restrictions on entitlement to fuel tax credits for fuel acquired, manufactured or imported between 1 July 2006 and 30 June 2012 unless certain conditions are met. In particular, subitems 10(5) and 11(5) of Schedule 3 of the Fuel Tax Transitional Act provide that an entity is entitled to the credit under section 41-5 of the FTA if the entity would have been entitled to an off-road credit under the Energy Grants Act.
Section 53 of the Energy Grants Act provides that an entity is entitled to an off-road credit if that entity purchases fuel for a use by that entity that qualifies. 'Use in marine transport', is a use that qualifies.
Section 36 of the Energy Grants Act sets out the meaning of the expression 'use in marine transport'. The most pertinent provision is subsection 36(6), which states: Use: (a) in equipment in or on a vessel; and (b) while the vessel is in or on the sea or fresh water; and (c) for air-conditioning, heating, lighting or for any purpose incidental to use of the vessel: (i) in marine transport; or (ii) for any of the purposes mentioned in subsection (4); or (iii) as mentioned in paragraph (5)(c); is use in marine transport.
Therefore, for the fuel that is used in the reefer with an integral mechanically-driven compressor to be accepted as being for 'use in marine transport' the fuel must be for use in equipment in or on a vessel, while the vessel is in or on the sea or fresh water, and for any purpose incidental to use of the vessel in marine transport. Each test will be considered in turn.
Is the use of taxable fuel to power a reefer with an integral mechanically-driven compressor, 'use in equipment in or on a vessel' ?
In this instance the reefer is placed onto and transported by the entity's vessel. Whilst on the vessel, the taxable fuel is used in the reefer to maintain the quality of the contents inside the reefer.
The reefer with an integral mechanically driven compressor is equipment 'on' the vessel. Therefore this requirement is satisfied.
Is the taxable fuel used while the vessel is in or on sea or fresh water ?
The taxable fuel is used by the reefer while the vessel is at sea. Therefore this requirement is satisfied.
Is the taxable fuel used 'for any purpose incidental to use of the vessel in marine transport' ?
The phrase 'incidental to' is not defined in the Energy Grants Act in relation to marine transport and therefore takes its ordinary meaning having regard to the legislative context in which it is used.
The phrase 'incidental to' is defined in The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW as: 5. liable to happen in connection with; naturally appertaining to.
In this case the vessel is transporting perishable goods from one place to another requiring the use of a reefer to maintain the desired temperature of the goods during transportation. It is therefore considered that the use of taxable fuel in the reefer is both liable to happen in connection with and naturally appertaining to the transport of perishable goods by the vessel engaged in marine transport.
With the criteria prescribed by subsection 36(6) of the Energy Grants Act satisfied, the entity would have been entitled to an off-road credit for taxable fuel used in marine transport for this activity.
It follows that the entity's entitlement to an off-road credit under the Energy Grants Act for this activity means that subitems 10(5) and 11(5) of Schedule 3 of the Fuel Tax Transitional Act are satisfied.
Accordingly, an entity is entitled to a fuel tax credit under section 41-5 of the FTA for taxable fuel, acquired between 1 July 2006 and 30 June 2012, for use in a reefer with an integral mechanically-driven compressor while being transported by a vessel. Note: This decision applies to reefers that have either an attached or built-in (fitted) mechanically-driven compressor. This decision does not apply to reefers that operate with electrically-powered compressors.