After years of being overcharged for fuel excise, the Australian trucking industry is becoming increasingly able to benefit from favourable interpretations of often-complex legislation. But the debate is not quite over yet.

Nobody likes paying tax – not only because of the demonstrable pay deduction coming with it, but also because the legislation behind it is so opaque. Many road transport operators, for example, are still unaware they have been entitled to a credit on fuel not used for ‘propelling a vehicle on a public road’ since the application of government excise for road transport fuels changed in 2006.

Prior to the revision, only primary producers and miners could generally claim rebates for fuel used in an off-road environment – but even now, a decade on, many general transport businesses are not aware of the benefits they may be able to access. Behind the confusion is a debate about the definition of two pertinent phrases – propelling a vehicle and public road – both of which continue to be at the centre of ongoing litigation.

The Federal Government currently levies an excise of 39.6 cents per litre on fuels including diesel and petrol. Operators of trucks manufactured after 1 January 1996, with Gross Vehicle Weights (GVMs) of more than 4.5 tonnes, are entitled to a credit of the difference between the excise and the current Road User Charge (RUC) of 25.9 cents per litre, which came into effect on 1 July. That difference of 13.7 cents per litre is what is currently generally claimed back by most operators – but there is an opportunity to claim back even more, which is where the off-road element comes into play.

The legislation says that the RUC is applied to fuel used for travelling on a road, with the funds effectively offsetting the wear and tear caused by heavy vehicles. The catch is that the RUC only applies to fuel used for travel on a public road, says Peter Gibson, head of the National Fuel Tax team at Deloitte, one of the ‘big four’ accountancy firms in Australia. “The industry should be made be aware that in many instances, it is paying double tax.”

According to Peter, the issue is so persistent that Deloitte’s National Fuel Tax team has recently been expanded to include three members each at the company’s Sydney, Melbourne and Perth offices, two in Queensland and one in Adelaide. Deloitte’s commitment in assembling the team is an indication of how widespread the over-taxing situation is, he explains – even a decade after the relevant legislation changed.

“Deloitte Tax Services first considered the anomaly in 2008 and approached Linfox in order to challenge the situation,” he recalls. “Ever since, we’ve been coming up with methodologies that apply to accounting for fuel tax matters.”

The headline-making Linfox case, he adds, was all about asking a series of key questions relevant to fuel burn that does not technically apply to road usage. “Is the fuel that is used to refrigerate the goods in the trailer fuel for travelling on the road? The ATO thought it was, but we took the view that the fuel used to refrigerate the load was not used for actual travel.”

Back then, about 40 companies became involved in the debate, including concrete suppliers and bus operators. On their behalf, Deloitte argued that diesel fuel used to power the refrigeration units on a truck or trailer shouldn’t be subject to the RUC and took the case against the Australian Tax Office (ATO) to the Administrative Appeals Tribunal in 2012. The Tribunal found in favour of Linfox and paved the way for other refrigerated transport operators to be entitled to claim back the entire amount.

While the decision continues to be celebrated as the ‘Linfox case’ – and has since resulted in millions of dollars being returned to the industry – new issues regarding the actual measurement of the fuel used beyond ‘on-road duty’ quickly arose – be it for fuel used in refrigeration units or to run concrete agitators.

Employing data from such items as hour meters connected to refrigeration units has helped alleviate the problem, but the ATO recognised that it may be difficult for people to quantify the amount of fuel used in a tipper, for example. Thanks to Deloitte’s negotiations with the ATO, there are now some formulae that make that job relatively straightforward.

In fact, the process was so successful that the ATO went on to produce a range of practical compliance guidelines in September this year to assist operators in assessing their entitlements to claim for fuel not used for propulsion. The advice includes a list of rates of deduction that the ATO will accept as “fair and reasonable” in the apportionment of taxable fuel used in various types of heavy vehicles. For each category, the guidelines indicate the percentage of taxable fuel that may be claimed to cover fuel used in powering the auxiliary equipment as well as fuel used while the vehicle is not on a public road. Examples include agitator trucks being eligible to claim back the RUC on 30 per cent of their total fuel, refrigerated vehicles on 10 per cent and waste management vehicles on 15 per cent.

Buses and coaches are entitled to the RUC exemption on five per cent of their fuel to cover air conditioning for passenger comfort. The same rate is applicable to long haul trucks fitted with auxiliary air conditioning such as icepacks but, to date, the ATO has refused to allow deductions related to the fuel required to cool the cab while travelling.

Deloitte is arguing that fuel used by the truck’s engine to power the conventional cab air conditioning when driving is not fuel used while travelling on road and seems confident of success as the concept is little different from the original Linfox case. Dynometer testing carried out in Victoria of various configurations and conditions has already indicated that about 1.5 litres per 100 kilometres – or two to three per cent of the total fuel usage – is what is required to run the cab air conditioners.

Not only is the intended purpose for the fuel a determining factor for additional rebates, Peter says, but the location of use is critical as well – especially in light of the definition of a public road. Roads such as those within port precincts and access roads and hardstands at distribution centres have been mostly constructed, maintained and owned by private enterprises rather than governments. Deloitte argues that this definition should cover any fuel used by trucks driving on them, rendering them exempt from the excise and the RUC.

The notion of private roads has also brought the ever-expanding network of toll roads under the scrutiny of Deloitte’s legal team. They are of the opinion that tolls present a scenario of “double dipping” and will argue that fuel used to propel trucks on toll roads should be exempt from the RUC, too. “We have clients with toll bills of over $1million per month,” Peter says. “When a truck is on a toll road, a proportion of the toll fee is assigned to maintenance of the road and an operator should not have to pay the RUC as well when travelling on a toll road.”

To date, the ATO has not agreed and, in April this year, indicated to Deloitte that the matter should be decided in court. Linfox has again agreed to be test case litigant – much as it did in the original case. The progress of the case will be observed with much interest by operators who stand to receive valuable rebates should the litigation be successful.

Peter says Deloitte will once again put “a lot of effort” into producing the reconciliations that are necessary to prove the next Linfox case and those that may follow, with data obtained via telematics and even geo-fencing likely to be used in the quantifications. “[Today] it’s not so much about claiming a credit as you use the fuel, but when you acquire the fuel. Comparing fuel acquisitions for a year with what has been claimed often reveals a gap that could be evaporation. A lot only claim for fuel used in their trucks, but fork lifts, generators, pressure cleaners and the like may be eligible too,” he states.

Presently, the ATO will accept legitimate claims going back four years and Peter advises operators considering getting involved to do so quickly. That counts as well for the potential of the yet-to-be-decided toll road action. Deloitte will notify the ATO that it has clients wanting to claim the rebates and then wait for a decision to be handed down. The four-year retrospective period commences when the notification of intent is made, and the ATO will hold the claims until the decision is confirmed, Peter explains.

“It’s always a good achievement to receive something back from a government and, in these situations, a significant reduction in fleet fuel costs can be achieved quite legitimately and in a straight-forward way. Even small fleets can find this worthwhile if they are doing significant kilometres.”

Extracted from Prime Mover.