Linfox gains silver lining to toll roads case loss

Federal Court rules they are public under fuel tax but backs credits point

Linfox gains silver lining to toll roads case loss
Linfox has had a loss and a win in court


Linfox has had a bitter-sweet time of its recent Federal Court appeal on how toll roads affect the treatment of taxable fuel for its trucks.

The case, Linfox Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCAFC 131, is determined in two parts.

The first relates to whether a toll road is a "public road" within the meaning of s 43-10(3) of the Fuel Tax Act.

There being no definition of "public road" in the Fuel Tax Act, Linfox argues toll roads are controlled and charged by private companies that are responsible for their upkeep and maintenance – a key reason for having the fuel tax – and therefore not public.

As the ruling by Federal Court judges Alan Robertson, Duncan Kerr and Harry Steward notes, the Act says: "To the extent that you acquire . . . 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 Administrative Appeals Tribunal (AAT) had opted for a broad meaning of the term as meaning any road accessible to the public, which the judges supported, pointing to the delineation for tax purposes being effectively between off-road and on-road situations and the fact that they will eventually revert to government at end of the contract.

"We do not find persuasive the applicant’s submission that the cost-setting process, the raising of a road user charge, was not concerned with what the public can and cannot access but with how heavy vehicles use roads and the public costs of maintenance and, indeed, other costs, environmental costs and health costs, associated with heavy vehicle use," they state.

Read how the Linfox set out on its toll roads tax case, here

The second part, which also involves the four-year cap on retrospective claimes, relates to the calculation of a net fuel amount, which the court took on as important clarifying the Act "or the indirect tax system more generally".

In in using its Business Activity Statement, Linfox had calculated its net fuel amount by assessing its total fuel tax credits by reducing the amount of its fuel tax credits by the amount of the road user charge for the fuel.

The company argued that how it was calculated mistakenly resulted in the amount of its total fuel tax credits increasing and its net fuel amount falling – and the AAT supported that position after the Commissioner of Taxation, the respondent in the appeal case, argued against it.

"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 fuel tax credit for the fuel is reduced by the amount of the road user charge," the judges rule.

"That the 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."

Linfox was left with 75 per cent of the costs, due to winning the second part.

The appeal rulings have garnered commentary mostly amongst accountants.

Commenting on the case, accountancy ShineWing Australia sees clarification on both parts as instructive, with more to come from the case.

"The most determinative factor in whether or not a road is a public road is the entitlement of the public as a right to use the road," ShineWing says.

"While this case has been a win for the Commissioner, it will be interesting to see how wide the ATO considers this decision extends when a Decision Impact Statement is released, and whether it specifically refers to other ‘roads’ and activities thereon.

"It also highlights the need for a robust approach to Fuel Tax Credits, in particular when dealing with issues of apportionment."

Industry body Chartered Accountants Australia and New Zealand explains the situation with the second part this way: "Broadly under s47-5(1), you ceased 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 four years after the day on which you were required to give the Commissioner a return for the tax period to which the fuel tax credit would be attributable." 

ShineWing sees the four-year rule aspect as where the broader indirect tax implications reside.

"The ATO argued that the taxpayer had not ‘taken into account’ the additional credits because they had not been claimed in its BAS within four years.

"The Court rejected this view in deciding the amount in question had been ‘taken into account’ ‘by reason of it having formed part of a calculation (the process) which produced the net amount recorded in a taxpayer’s BAS’.

"In practical terms, this appears to suggest that if an amount was included in the FTC/BAS workpapers, then it will be regarded as having been taken into account even if it is not included on the BAS.

"Conversely, an amount that did not form part of the calculation process and was not included on the BAS would not be regarded as having been taken into account.

"This is at odds with the current ATO view so the ATO response will be interesting to observe. Given the often very significant amounts of indirect tax (FTC or GST) at stake when dealing retrospectively, this issue is one that requires particular care."

A response has been sought from Linfox.

The full ruling can be found here.


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