Supermarket giant Coles has lost a $40 million Federal Court case against the Australian Taxation Office over tax it paid on 107 million litres of evaporated fuel sold through its Express service stations.

In November last year, weeks prior to Coles’ demerger from former parent company Wesfarmers, the grocery retailer filed five separate applications against the tax office.

The company was seeking fuel tax credits on approximately 0.3 per cent of fuel it sold between July 2012 to June 2015, and in August 2017. Coles claimed the fuel, which had evaporated, was not in fact acquired for sale, but acquired for a separate “use in carrying on [a relevant] enterprise” and therefore eligible for credits under the Fuel Tax Act.

Fuel tax credits provide businesses which have bought fuel for their business with a credit for the tax that is included in the price of fuel.Advertisement

Coles also claimed that even if it were not eligible for fuel tax credits, it would be able to claim a decreasing fuel tax adjustment, arguing the fuel acquired for sale but then lost through evaporation or leakage was used in a way other than intended at the time of its acquisition.

This would entitle the company to a tax adjustment on that fuel.

The evaporation or leakage of fuel was wholly incidental … in the sense that it was an unwelcome, and unavoidable, part of that activity.

Federal Court Judge Mark Moshinsky

In a judgment passed down on Wednesday afternoon, Judge Mark Moshinsky ruled in favour of the ATO, determining Coles was not eligible for either tax credits or a decreasing fuel tax adjustment.

Justice Moshinsky determined any fuel which had evaporated could not have been considered “used” for a reason separate to carrying out Coles’ fuel selling business.

“I consider it appropriate to characterise the purpose of acquisition of the portion that evaporated or leaked in the same way as the purpose of acquisition of the bulk of the fuel, namely for use in making a taxable supply,” he said.

“This is not a ‘use’ for the purposes of [the Fuel Tax Act].”

“The evaporation or leakage of fuel was wholly incidental to Coles Express making a taxable supply of fuel, in the sense that it was an unwelcome, and unavoidable, part of that activity.”

Coles and the ATO now have two weeks to determine payable costs.

The ATO said it was unable to make a comment about the decision at this stage. Coles was approached for comment.

Extracted from SMH