Just like the vintner’s “angel’s share”, court finds dissipated fuel has no claimable value

It has long been the case with liquids that have a commercial value that any final transaction may have to accept the fact that the final volume at sale may be a little less than the original volume. This can be due to residual product left in pipes and containers, loss to atmosphere (especially for the more “evaporative” liquids) and simple human interaction that leads to inadvertent spillage (such as when connecting one container to another).

For hundreds of years this has been an accepted factor in the wine and spirits industry, for example. Drips, drops and splashes made during the production process just had to be factored into operative realities (and one wonders if this increased after “quality control” sampling). The very slight reduction in the volume of wine in sealed wooden barrels, due to a wicking affect of the bung and/or the miniscule escape of vapours through porous timber, came to be known as the “angel’s share”.

A recent Federal Court case has resurrected this ancient reality, but this time it is regarding dealing with commercial fuel. The taxpayer involved (in this case, Coles Supermarkets) contended that it was entitled to fuel tax credits in respect of fuel that was lost through evaporation or leakage as the relevant fuel was acquired “for use in carrying on [the relevant] enterprise” for the purposes of sec 41-5 of the Fuel Tax Act 2006. The taxpayer had also argued that it was alternatively entitled to a decreasing fuel tax adjustment (under sec 44-5).

In the case, Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation [2019] FCA 1582, a small portion (approximately 0.3%) of the fuel purchased was lost through evaporation or leakage. Of course, given the perhaps large volumes involved, depending on the taxpayer, and the price of fuel, this could add up to quite a lot in dollar terms.

The Federal Court found that it was appropriate to characterise the portion of the fuel that evaporated or leaked in the same way as the fuel that was re-sold to customers. In other words, the portion that evaporated or leaked was not “used” in carrying on the enterprise for the purposes of the Fuel Tax Act and, accordingly, the taxpayer is not entitled to fuel tax credits for the fuel that evaporated or leaked under sec 41-5(1).

In relation to the sec 44-5 decreasing fuel tax adjustment matter, the Federal Court maintained its view that the portion that evaporated or leaked was not “used” in carrying on the enterprise for the purposes of the act, meaning that the taxpayer was not entitled to a decreasing fuel tax adjustment under sec 44-5 with respect to the fuel that evaporated or leaked.

The judgment states that the relevant section “explains that a taxpayer’s entitlement to a fuel tax credit for taxable fuel is ‘worked out on the basis of what the fuel is intended for when you acquire, manufacture or import the fuel’. It then explains that ‘if you use or supply the fuel differently, or you do not use or supply the fuel at all, you have an increasing or decreasing fuel tax adjustment’.”

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