Full Federal Court Decision on Fuel Tax Credits

Linfox Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCAFC 131

The Full Court of the Federal Court recently handed down a decision in Linfox Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCAFC 131 (Linfox Case) in relation to fuel tax credits claimed by Linfox pursuant to the provisions of the Fuel Tax Act 2006 (Cth) (FTA).

Fuel tax credits can be claimed by heavy vehicle operators (among others) in particular circumstances. The Linfox Case relates to when those fuel tax credits are reduced and so is relevant to heavy vehicle operators who may wish to claim fuel tax credits.

Background to Fuel Tax Credits

Fuel tax credits provide a credit for the fuel tax (such as excise or customs duty) that is included in the price of fuel.

The FTA provides for fuel tax credits in relation to fuel that would otherwise be subject to fuel tax (under Part 3-1 of the FTA) in circumstances where the fuel:

• is used in carrying on an enterprise (other than fuel used on-road in light vehicles)
• is used in domestic heating and domestic electricity generation
• is packaged for use other than in an internal combustion engine
• is supplied into certain kinds of tanks

Fuel tax credits are designed to ensure that fuel tax is applied only to fuel used in private vehicles and for certain private purposes, and fuel used on-road in light vehicles for business purposes.

Specifically, section 41-20 of the FTA provides that a fuel tax credit is not available to the extent that fuel is acquired for use in a vehicle with a gross vehicle mass of four and half tonnes or less travelling on a public road. This means that fuel tax credits are available, in certain circumstances, in relation to fuel acquired for use in heavy vehicles.

Section 43-10 sets out how the amount of a fuel tax credit is to be calculated and also provides for circumstances in which that credit is to be reduced. Specifically, subsection 43-10(3) provides that:

To the extent that you acquire, manufacture or import taxable fuel to use, in a vehicle, for travelling on a public road, the amount of your fuel tax credit for the fuel is reduced by the amount of the road user charge for the fuel.

The road user charge only applies to public and not private roads and its rate is set by the Transport Minister in accordance with the provisions of the FTA.

Linfox Case

The Linfox Case resulted from an appeal by Linfox from a decision in the Administrative Appeals Tribunal (Linfox Australia Pty Ltd and Commissioner of Taxation [2019] AATA 222) which found in favour of the Commissioner.

Linfox had objected to an assessment made by the Commissioner in relation to its claim of fuel tax credits for fuel used in heavy vehicles operated by it on toll roads. Linfox, engaging in self-assessment as required, had originally reduced the fuel tax credit it had claimed by the road user charge applicable at the time. Linfox now claimed that that reduction was in error and that the road user charge should not apply.

The Federal Court was asked to consider the following issues:

• Whether the road user charge in section 43-10(3) of the FTA applies to fuel acquired by a business for use in a vehicle while travelling on certain toll roads (namely, the M2 Motorway, the Go Between Bridge, Eastlink, and the Sydney Harbour Tunnel). The main question to be determined in relation to this issue was whether Linfox acquired taxable fuel to use in a vehicle for travelling on a public road (First Issue)
• Whether pursuant to the four-year limitation period in section 47-5 of the FTA, Linfox had ceased to be entitled to retrospectively claim the fuel tax credits (Second Issue)

First Issue

The First Issue involved a question of statutory construction specifically in relation to the meaning of ‘public road’ and if a toll road could be considered a public road. If a toll road is considered a public road the road user charge would be applied to reduce the fuel tax credit amount to which Linfox claimed it was entitled.

The Federal Court found that:

• as ‘public road’ is not defined in the FTA it was necessary to construe the meaning of that phrase within the context of the FTA
• the toll roads were publically accessible and integrated into the public road network subject to the requirement that a toll be paid for use
• there was not sufficient justification based on the wording of the legislation to suggest that ‘public road’ should only mean road for which the Government is responsible for construction and maintenance costs or which is not operated with the object of yielding a profit to a private entity.

Therefore, a toll road operated by a private entity was a public road for the purposes of the FTA. As such, the road user charge was found to apply and so the reduction in the fuel tax credits was maintained.

Second Issue

The Federal Court noted that it was not necessary to decide the Second Issue, which was raised by the Commissioner in the alternative, as its relevance was dependent on Linfox being successful in relation to the First Issue (which it was not). However, the Federal Court determined that it was prudent to decide on the Second Issue due to the importance of the issue and the broader implications for the administration of the FTA.

The Second Issue arose as the Commissioner sought to argue that Linfox had not taken into account the whole of the fuel tax credits when determining the net fuel amount for the relevant assessment period, as it had reduced that amount by the road user charge. This was because the additional credits had not been claimed in Linfox’ BAS within the four-year period.

Section 47-5 of the FTA imposes a time limit on claiming fuel tax credits to the extent that those credits had not been taken into account in an assessment of a net fuel amount during the 4 years after the day on which the taxpayer’s tax return for the relevant tax period or fuel tax return period was due. The Commissioner accordingly claimed that Linfox’ entitlement to fuel tax credits had now ceased.

The Federal Court rejected the Commissioner’s arguments on the Second Issue and found that section 47-5 of the FTA did not operate to bar Linfox from claiming fuel tax credits. This was on the basis that the amount had been ‘taken into account’ as it formed part of the calculation process in producing the net amount recorded in Linfox’ BAS. As (per Robertson, Kerr and Steward JJ at [134]):

In our opinion, the assessment of the net fuel amount includes the calculation of the total fuel tax credits which in turn includes the amount by which the taxpayer’s [Linfox] fuel tax credit for the fuel is reduced by the amount of the road user charge. That assumed error was in relation to the road user charge, and therefore affected the calculation of the total fuel tax credits, does not seem to us to have the result that the fuel tax credit has not been taken into account, to the extent of the erroneous reduction, in an assessment of the net fuel amount.

Australian Taxation Office (ATO) response to the Linfox Case

The Commissioner has issued a Decision Impact Statement in response to the Linfox Case with a particular focus on the Second Issue.

While the ATO accepts the Federal Court’s conclusion in relation to how the fuel tax credit was ‘taken into account’ in an assessment, it noted that the particular facts in the case did not require the Court to consider a situation where no credit has been claimed in respect of any particular fuel acquisition. For example, where a taxpayer has simply forgotten (or omitted) to claim a credit in respect of an acquisition within the four-year limitation period.

The ATO states that the Linfox Case, together with outcomes of other current litigation, will be taken into account in finalising Draft Miscellaneous Tax Ruling MT 2018/D1: time limits for claiming an input tax or fuel tax credit.

Further, the Commissioner is now reconsidering if fuel used to power other passenger air conditioning units (for example, in commercial buses) is used ‘for travelling’ and therefore whether the associated fuel tax credits would be reduced by the road user charge where the fuel is used for travelling on public roads.

Significantly, the Commissioner is also reconsidering the availability of fuel tax credits in respect of fuel used to power other forms of auxiliary equipment in vehicles. The outcome of the ATO’s review may potentially have a detrimental impact on various businesses that claim full credits in respect of auxiliary equipment such as air conditioning units of commercial buses, cement mixers, refrigeration units and elevated work platforms.

How can Rigby Cooke help?

This case has clarified the definition of ‘public road’ which was not otherwise defined by the FTA and provides valuable insight in relation to the construction of section 47-5 of the FTA and should be noted by anyone seeking to claim fuel tax credits.

The ATO’s response to the case suggests that the entitlement of businesses to claim fuel tax credits may be reduced in certain circumstances. We recommend that businesses review their entitlements to fuel tax credits and make any retrospective claims as soon as possible.

We can assist you in reviewing your entitlement to claim fuel tax credits and the impact of the Linfox Case on your business, including the fact that toll roads are public roads when calculating entitlements to fuel tax credits.