Last month I reported on a decision of the Full Federal Court involving fuel tax credits and the operation of the four year rule in s 47-5 of the Fuel Tax Act, which is analogous to four year rule for claiming input tax credits in s 93-5 of the GST Act. Yesterday the Federal Court handed down Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation [2019] FCA 1582 which also considered the operation of that section. My post on the decision of the Full Federal Court in Linfox Australia Pty Ltd v Commissioner of Taxation [2019] FCAFC 131 can be accessed here.

The case involved the question whether the taxpayer was entitled to fuel tax credits with respect to a small portion of the fuel that was lost to evaporation or leakage. One of the issues was whether the taxpayer’s entitlement to claim the credits for some tax periods was lost due to the operation of the four year rule in s 47-5 of the Fuel Tax Act.

The Court did not need to formally deal with the issue due to its finding that the taxpayer was not entitled to the fuel tax credits. Nevertheless, it did make some observations on the issue and it does appear that the Court would have found for the taxpayer if it was required to formally rule on the issue. The observations address the role of s 47-5 and also how the provision fits with the objection and review regime in Part IVC of the Taxation Administration Act (TAA).

The taxpayer accepted that when it filed its fuel tax return (being deemed assessments) for the relevant periods (June 2012 to January 2014), it did not quantify a fuel tax credit for fuel that leaked or evaporated. The taxpayer also submitted that it was unaware of any potential entitlement at that time. In August 2016, the taxpayer objected to the deemed assessments and claimed an entitlement to fuel tax credits for the fuel lost through evaporation and leakage.

The Commissioner contended that the taxpayer’s entitlement to claim the fuel tax credits had expired by reason of the operation of s 47-5(1) and (2) of the Fuel Tax Act, which state as follows:

(1) You cease to be entitled to a fuel tax credit to the extent that it has not been taken into account, in an assessment of a net fuel amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a return for the tax period or fuel tax return period to which the fuel tax credit would be attributable under subsection 65-5(1), (2) or (3).

(2) Without limiting subsection (1), you also cease to be entitled to a fuel tax credit for taxable fuel you acquire, manufacture or import, to the extent that you  do not give to the Commissioner under section 61-15 during the period of 4 years after the day on which the acquisition, manufacture or importation occurred a return that takes the fuel tax credit into account.

The Commissioner contended that the section was engaged because the taxpayer had not “taken into account” the additional fuel tax credits by claiming them in its BAS within four years. The Commissioner contended that the subsections each created an independent time limit after which the entitlement to fuel tax credit ceased.

The taxpayer advanced two main contentions:

• First, notwithstanding that it did not quantify the fuel tax credit in the fuel tax returns for the relevant period, the fuel tax credit was nevertheless “taken into account” for the purposes of s 47-5.
• Second, s 47-5, when understood in its historical context, was designed to place a four year limit on the process of claiming an input tax credit in a later tax return – but it was not intended to affect the objection and appeal processes dealt with in Part IVC of the TAA. It was sufficient that the taxpayer objected to the assessments within the four year period and claimed the fuel tax credits in its objections.

The Court made the following observations on the submissions – noting that it was not necessary to decide the point:

• The Court would have rejected the taxpayer’s first contention. The fuel tax credit was not an integer used by the taxpayer in calculating its net fuel amount in its fuel tax returns. The taxpayer was not aware of the potential entitlement, nor was the fuel tax credits included in any subsequent fuel tax return. In these circumstances, the fuel tax credit was not “taken into account” in an assessment within the four year period referred to in s 47-5.
• The Court considered there was some force in the taxpayer’s second contention, when s 47-5 was understood in its historical context. The Court said:

…there is a persuasive argument that: s 47-5 is intended to prevent an ongoing entitlement to claim in credits in a later return where a return has not been lodged or credits not claimed; Div 155 of Sch 1 to the Taxation Administration Act provides for a separate dispute resolution mechanism (ie objection and review) once a return has been lodged or a default assessment issued; and once a return has been lodged and objected to, there is no scope for the operation of s 47-5 to disentitle a taxpayer to fuel tax credits as the rights of the Commissioner and the taxpayer are, relevantly, preserved and protected by ss 14ZY, 14ZZP and 14ZZQ of the Taxation Administration Act and s 155-60 of Sch 1 to that Act. 

This observation of the Court can be equally applied to the four year rule in s 93-5 of the GST Act on claiming input tax credits.

As with the Linfox decision, the decision has implications for the Commissioner’s draft Draft Miscellaneous Taxation Ruling MT 2018/D1 ‘Miscellaneous tax: time limits for claiming and input tax or fuel tax credit’, which was issued in November 2018 (my initial comments on the draft ruling can be accessed here). The underlying premise to the draft ruling is that if fuel tax credits and input tax credits were not “taken into account” in an activity statement within four years, the entitlement to those credits was lost – regardless of whether an objection under Part IVC of the TAA had been lodged and even if the objection in the process of being considered by a Court. In this context, the Court observed as follows:

Acceptance of the Commissioner’s submissions would present the difficulty that a taxpayer could lawful object to an assessment and find that, when a court came to consider the matter outside the four-year period, an entitlement to a fuel tax credit would be denied , notwithstanding that the credit was attributable to the period to which the assessment and objected related. For example, it may be that, in relation to a contentious issue concerning a fuel tax credit, a taxpayer wishes to self-assess on the basis of the Commissioner’s position on the issue, and then object against the deemed assessment. In this scenario, if the Commissioner’s submissions are correct, the taxpayer’s entitlement to the fuel tax credit would depend on whether or not the matter was determined (by the Commissioner or on review or appeal) within the four year period. Thus, while I accept that s 47-5 is expressed in unqualified terms, consideration of the legislative history, including that it was introduced during the period when a self-actuating system applied, is generally supportive of Coles’ contention.