Explanatory Statement
Fuel Tax Act 2006
Fuel Tax (Fuel Blends) Determination 2006 (No. 2)
General Outline
- This Explanatory Statement is provided in accordance with section 26 of the Legislative Instruments Act 2003.
- Fuel Tax (Fuel Blends) Determination 2006 (No. 2) is made under section 95-5 of the Fuel Tax Act 2006 (Fuel Tax Act).
- The instrument applies on and from date of registration of this instrument.
- Under section 41-5 of the Fuel Tax Act, an entity (other than a non-profit body providing emergency services) that is registered, or required to be registered, for goods and services tax (GST) is entitled to a fuel tax credit on taxable fuel that it acquires or manufactures and then uses in carrying on its enterprise.
- Section 110-5 of the Fuel Tax Act defines an enterprise to have the same meaning as in the A New Tax System (Goods and Services) Act 1999 (GST Act).
- The term ‘use’ in the Fuel Tax Act is not defined and takes its ordinary meaning unless it is clear that Parliament intended it to have another meaning. Consistent with the ordinary meaning of ‘use’, where fuel is used up in making a non-fuel product, it ceases to exist as fuel and therefore has been ‘used’. Paint production is a clear example of such use.
- However there may be circumstances where it is not clear whether the blend of a fuel and another product is not a fuel, with the associated risks of diversion to use in an internal combustion engine. To provide certainty to industry, section 95-5 of the Fuel Tax Act gives the Commissioner power to determine that such blends do not constitute fuel for the purposes of the fuel tax law. Note 2 to subsection 41-5(1) states that fuel is taken to have been used if it is blended as specified in a determination made under section 95-5.
- Section 95-5 requires that the Commissioner consider a number of matters when making a determination. These are:
(a) the physical and chemical properties of the blend;
(b) whether the blend can be used in an internal combustion engine;
(c) whether the fuel is marketed and distributed as fuel;
(d) whether there is a risk that the blend might be used as a fuel, and the financial impact on the Commonwealth if the blend were used as a fuel;
(e) any other relevant matter.
The Commissioner must give the greatest weight to the matters in paragraph (d).
9. Certain blends containing fuel are designed, marketed and sold to a wide variety of industries and private users for non-fuel uses such as cleaning agents, solvents and thinners. It is therefore appropriate, where the risk of diversion is minimal, that these products are treated as non-fuels for fuel tax credit purposes.
10. The Explanatory Memorandum to the Fuel Tax Bill 2006 (the EM) provides commentary on blends that are not fuel and the intended purpose of section 95-5 at paragraphs 1.26, 1.27, 1.39 to 1.44, 2.36 and 2.202 to 2.204.
Purpose and effect of the instrument
11. Blends that are covered by this determination would be classified to subitem 10.30 of the Schedule to the Excise Tariff Act 1921 (Excise tariff), if it were not for the fact that they are excluded from being excisable goods due to the determination.[1]
12. The determination provides several criteria, all of which must be met before the blend is determined not to be a fuel for the purposes of the Fuel Tax Act. These are:
- the blend must be packaged in containers of not more than 20 litres capacity
- the packaging must not give an indication that the blend can be used as fuel in an internal combustion engine
- the blend must be sold in a single-use container
- the blend must not be added to a used container, and
- it must be reasonable for the person who makes the blend to conclude that the fuel will not be used as fuel in an internal combustion engine.
13. Repackaging of bulk product is relevant to the risk of diversion. It is considered that the 20 litre container, a common package size for products of this kind, represents a sufficiently low risk for the purposes of determining that certain blends do not constitute a fuel. The cost of the container, as well as other costs associated with smaller quantity supply, will ensure that the price of the blend is higher than the price of fuel used in internal combustion engines, eliminating the financial incentive to divert the product to that use.
14. Product packaging and marketing provides a primary basis on which to judge the intended use of a product. Marketing includes any representations that are made about the nature of a product and the uses for which it is designed. These would normally include labelling, product listing and advertising.
15. The determination only applies to products that are packaged by the manufacturer or distributor, using containers that are not intended to be returned and refilled.
16. The determination allows manufacturers and distributors who package these products into containers of 20 litres or less to access fuel tax credits for the fuel tax embedded in the fuel components, without having to pass this tax on to their customers.
17. The instrument is confined to blends of fuel classified to subitems 10.15, 10.16, 10.25, 10.26, 10.27, 10.28 and 10.30 of the Excise tariff. These subitems do not include gasoline, diesel, biodiesel, fuel ethanol[2], certain blends of those products and some other types of fuel.
Item | Subitem | Description of goods | Rate of Duty
|
| 10.15 | Heating Oil | $0.38143 per litre |
| 10.16 | Kerosene (other than for use as fuel in aircraft) | $0.38143 per litre |
| 10.25 | Liquid aromatic hydrocarbons consisting principally of benzene, toluene or xylene or mixtures of them (other than goods covered by section 77J of the Excise Act 1901) | $0.38143 per litre |
| 10.26 | Mineral turpentine (other than goods covered by section 77J of the Excise Act 1901) | $0.38143 per litre |
| 10.27 | White spirit (other than goods covered by section 77J of the Excise Act 1901) | $0.38143 per litre |
| 10.28 | Petroleum products (other than blends) not elsewhere included (other than goods covered by section 77J of the Excise Act 1901) | $0.38143 per litre |
| 10.30 | Blends of 1 or more of the above goods (with or without other substances) not elsewhere included that can be used as fuel in an internal combustion engine (other than goods covered by section 77J of the Excise Act 1901) | The amount of duty worked out under section 6G |
18. It should be noted that a manufacturer or distributor who packages unblended kerosene, mineral turpentine, white spirit and fuel classified to subitem 10.28 into containers of 20 litres or less for use other than in an internal combustion engine can access fuel tax credits at the time of packaging.[3] Under this determination blends containing these products will qualify for the same treatment. As noted above, such blends would be classified to subitem 10.30, but for the effect of the determination.
Impact of the instrument
19. The determination provides greater certainty to industry that certain blends of fuel and other products are not a fuel for the purposes of the fuel tax law. This allows manufacturers and distributors who package these products to claim fuel tax credits on the fuel components without having to pass the cost of fuel tax (duty) on to their customers. This reduces the number claimants for fuel tax credits in respect of these products and also ensures that private use is not subject to fuel tax: see EM at paragraph 1.27.
20. As a section 95-5 determination has implications for excise manufacture, the instrument may provide clarity around excise licensing requirements in relation to certain businesses that manufacture and repackage these products into containers of 20 litres capacity or less.
21. The determination is applicable from the date of registration of the instrument so as to not affect any rights or entitlements that might have arisen before the instrument was registered.
Consultation
22. In the preparation of this legislative instrument the Tax Office has taken into account comments received from industry as part of a wider consultation process on Excise Tariff Reform and earlier draft instruments made under section 95-5 as well as concerns raised in the course of intensive communications with clients following the passage of the legislation in late June 2006.
23. The Tax Office initiated a 2-week public consultation process and made two draft instruments available for consultation purposes from 5 June to 16 June 2006 on the ATO website www.ato.gov.au. Interested parties were contacted by email and invited to offer comment. In addition, the Tax Office initiated a meeting with representatives from the solvent manufacturing sector in Melbourne on 15 June 2006 for the purpose of receiving feedback on the proposed instruments.
Commissioner of Taxation
[25 July 2006]
Previous draft:
Related Rulings/Determinations:
Fuel Tax (Fuel Blends) Determination 2006 (No. 1)
Subject references:
Fuel tax
Fuel tax credits
Fuel blending
FTC fuel
FTC blended fuel
Legislative references:
A New Tax System (Goods and Services) Act 1999 section 110-5
Excise Act 1901 subsection 77H(1)
Excise Tariff Act 1921, the Schedule, subitems 10.25, 10.26, 10.27, 10.28, 10.30
Fuel Tax Act 2006 section 41-5
Fuel Tax Act 2006 subsection 41-5(1)
Fuel Tax Act 2006 subsection 41-10(2)
Fuel Tax Act 2006 section 95-5
Fuel Tax Regulations 2006 regulation 41-10
Other references:
Explanatory Memorandum to the Fuel Tax Bill 2006, Fuel Tax (Consequential and Transitional Provisions) Bill 2006
ATO references
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[1] See subsection 77H(1) of the Excise Act 1901
[2] Note: certain ethanol and ethanol-based products may be available duty-free under the alcohol provisions of the Excise legislation; the fuel tax law does not apply to these products.
[3] Subsection 41-10(2) of the Fuel Tax Act and regulation 41-10 of the Fuel Tax Regulations 2006