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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
Diesel and Alternative Fuels Grants Scheme (Administration and Compliance) Bill 1999
Date Introduced: 23 September 1999
House: House of Representatives
Commencement: The main provisions of the Bill (Part 2 of Schedule 1) commence on the day after the Bill receives Royal Assent.
To enact administrative arrangements, including compliance mechanisms, required to support the operation of the Diesel and Alternative Fuels Grants Scheme.
The Diesel and Alternative Fuels Grants Scheme (DAFGS) was developed as part of the agreement between the Government and the Australian Democrats on the modified A New Tax System (ANTS). The main DAFGS framework is contained in the Diesel and Alternative Fuels Grants Scheme Act 1999 (DAFGS Act)(1) which received Royal Assent on 8 July. Amongst other things, the commencement of the DAFGS Act is conditional on commencement of the Diesel and Alternative Fuels Grants Scheme (Administration and Compliance) Bill, the subject of this Digest. This condition reflects the Government's commitment to put in place 'rigorous enforcement measures' to police DAFGS.(2)
DAFGS is intended to provide assistance to regional areas by reducing the cost of diesel and certain other fuels used in transporting goods and passengers in such areas. DAFGS applies to on-road and not to off-road use on farms or mining sites etc (the Diesel Fuel Rebate Scheme (DFRS) applies to off-road use).
Broadly speaking, eligibility for grants under the scheme is limited to vehicles weighing between 4.5(3) and 20 tonnes operating outside metropolitan areas and all vehicles weighing more than 20 tonnes operating in all areas.(4) The reason for limiting the grants to vehicles between 4.5 and 20 tonnes relates to concerns about particulate emissions from diesel vehicles affecting urban air quality. The original ANTS proposal would have provided a 'GST credit' equal to around half the excise paid on diesel to all vehicles over 3.5 tonnes thus possibly encouraging a switch from light petrol vehicles to heavier diesel vehicles, with a consequent increase in particulate emissions.(5)
One of the most prominent issues in the parliamentary debates over the DAFGS Act was the question of an administrative and compliance system for the scheme. More specifically, the issue was whether it was possible to set up a system that would strike an acceptable balance between preventing fraudulent claims on the one hand, and minimising the compliance burden on the transport industry on the other(6). In part, this debate stems from the experiences of the DFRS in the 1980s and 90s. The DFRS was reviewed by the Australian National Audit Office (ANAO) in 1991 and 1996. The 1996 ANOA report(7) found that a risk-based approach to ensuring compliance was lacking, with little substantiation of grant claims or targeting of claimants. The Australian Customs Service, the administrator of the scheme, had also 'virtually discontinued' imposing administrative penalties or prosecutions for those abuses of the scheme that had been detected.(8) The result was that at least $23.4 million was overpaid to claimants during the 1994-95 financial year. The Australian Customs Service have since implemented a DFRS Modernisation Project, which has included redeploying staff way from claims processing to 'more critical audit and compliance activities'.(9)
The Diesel and Alternative Fuels Grants Scheme (Administration and Compliance) Bill (the Bill) attempts to address these types of issues by including guidelines on eligibility, entitlements and record keeping plus providing the scheme's administrators, the Australian Tax Office (ATO), with extensive powers to impose penalties, recover overpayments and gain access to claimants' records and premises. Of course, the success of the compliance regime will also greatly depend on the ATO's ability to implement effective operational strategies to translate the administrative framework into action.
Eligibility for grants and calculating entitlements
Subject to the Bill being passed and various emission standards coming into effect, the DAFGS commences on 1 July 2000. Intending applicants must register to be eligible for grants. Registration mechanisms have yet to be developed, but the Bill provides that applicants can register from 1 March 2000. Applicants must have an Australian Business Number (ABN) to register.(10)
Eligibility for grants depends on a number of factors. These are laid out in the DAFGS Act but are included in this Digest for reference.
Firstly, the vehicle must be used for carrying on a business ('enterprise' in the words of the DAFGS Act). Secondly, as previously mentioned, eligibility also depends on vehicle weight. For vehicles weighing more than 4.5 tonnes but less than 20 tonnes, three types of journeys are eligible: between a point outside the metropolitan area and another point outside the metropolitan area; between a point outside the metropolitan area and a point inside a metropolitan; or between different metropolitan areas. Under the DAFGS Act, metropolitan areas are:
(a) the Newcastle-Sydney-Wollongong metropolitan area
(b) the Melbourne-Geelong metropolitan area
(c) the Sunshine Coast-Brisbane-Gold Coast metropolitan area
(d) the Perth metropolitan area
(e) the Adelaide metropolitan area, and
(f) the Canberra metropolitan area.
The boundaries of 'metropolitan areas' are yet to be defined (this will be done through regulations). However, as can be seen from the above, neither Darwin nor Hobart are considered to be metropolitan areas.
A third criterion is that the grants are only available to the extent that the journey is on a public road. Finally, for vehicles in the 4.5 to 20 tonne category, the vehicle for which the grant is claimed must be used for transporting passengers or goods.
There may be an asymmetry in the definition of what is an eligible journey. The applicant driving a 4.5 to 20 tonne vehicle is entitled to a grant for the entire journey from a non-metropolitan to a metropolitan destination. But an identical journey in the opposite direction seems to be eligible only for that part which is outside the metropolitan area. This interpretation applies if the word 'between' in paragraph s.10(2)(b) of the DAFGS Act is a synonym for 'from' in the sense of from one point to another. One consequence of this interpretation may be to increase the cost of goods transported to regional areas compared to identical trips in the opposite direction.
There also seems to be some ambiguity as to what constitutes a 'point' and hence a journey. For example, a trip from Wagga to Sydney may entail several delivery destinations in Sydney as part of a continuous journey. It is not clear whether 'point' means the first or the final delivery point of such a journey. The precise definition of a 'point' thus seems likely to give rise to disputes.
Much will depend on how 'point' is interpreted by the ATO. The Bill gives the Tax Commissioner (the Commissioner) power to determine - in writing - what is and what is not a journey. But before making a determination, the Commissioner must consult:
(a) the Bus Industry Confederation
(b) the Australian Trucking Association Ltd
(c) the National Farmers Federation, and
(d) any other organisations (if any) as are specified in the regulations.
Note that the Commissioner must consult all these organisations.
The formula under the Bill for calculating the size of the grant for both sizes of vehicles is:
where eligible kilometres means the number of whole kilometres travelled by the vehicle during that grant period; total kilometres means the number of whole kilometres travelled by the vehicle during that grant period; and total quantity of fuel means the number of litres (or, if the fuel is a gas, the number of cubic metres) of that type of fuel used in the vehicle during that grant period. The Commissioner's assessment of the size of the grant can be appealed to the Administrative Appeals Tribunal.
'Grant period' in the paragraph above means the administrative period over which the various grant entitlements for eligible journeys are totalled up. A claim would then normally be submitted at the end of the grant period. Persons or entities eligible to receive grants may nominate these periods to be as short as one month or as long as a calender year. However, the Bill provides that the Commissioner may refuse to accept a nominated period by giving written notice. In such cases, the Commissioner would apparently determine what the grant period would be under power given by under s.14(3) of the DAFGS Act. S.14(3) allows the Commissioner to 'determine grant periods for entities of a kind'. Under s.37(4) of the A New Tax System (Australian Business Number) Act 1999, 'entities of a kind' appears to mean a specific person, trust, company, partnership etc. The Commissioner's refusal to accept a nominated grant period can be appealed to the Administrative Appeals Tribunal.
The Bill also allows for grants to be made before the end of a grant period. Such payments are termed 'advances'. The Bill also foreshadows that the Commissioner may produce guidelines to govern such advances of grants. The guidelines will be a disallowable instrument for the purposes of s.46A of the Acts Interpretation Act 1901.(11) The Commissioner must abide by any such guidelines that are produced.
Note that grants are considered to be a subsidy under s.15.10 of the Income Tax Assessment Act 1997. This means that they are assessable income for income tax purposes.
Requirements for record keeping
Applicants are not entitled to receive grants unless they maintain appropriate records. The Bill does not prescribe the exact form of records required to make claims under DAFGS beyond specifying that applicants must
keep records that enable you to substantiate your claim for the fuel grant...and retain those records until you make the claim.(12)
However, as a guide based on the examples in the Explanatory Memorandum and the discussion above on what constitutes an eligible journey, the information that applicants will likely need to maintain includes:
The Commissioner may also make a written determination setting out what kinds of records are appropriate and the manner they should be kept.
Grantees must retain records for five years, and must comply with a request in writing from the Commissioner to produce the records. If records are lost or destroyed and no copy is available, entitlements to grants are not affected if the Commissioner is satisfied that 'reasonable precautions' had been taken to prevent loss or destruction.
A compliance strategy has yet to be fully developed by the ATO. However, it is understood that it will be based on two key areas. Firstly, assisting claimants to understand their obligations through an information and education campaign and, secondly, to undertake a highly visible and targeted enforcement strategy. The enforcement strategy is likely to incorporate risk management approaches including developing sector and user profiles against which claims can be monitored. It is unclear as to what level of resources the ATO will have in order to implement any compliance strategy.
The Bill contains a number of elements that provide for penalties. These are discussed below.
Claimants - including individuals, body corporates (eg companies), partnerships and trusts - can be disqualified because of fraudulent acts of the claimant or an individual or entity closely associated with the claimant. A fraudulent act means knowingly or recklessly making a false statement (including an omission) in material particular that results in an increased grant. In the case of companies, they will be disqualified if a director, secretary or person concerned with or taking part in company management is disqualified. Anyone abetting a fraudulent act will also be disqualified. The length of disqualification is at the Commissioner's discretion, though the 'default' (and maximum) is for the length of the scheme which is intended to end in June 2002. A fraudulent act, or abetting one, can result in a prosecution under s.8P or s.8N of the Taxation Administration Act 1953 which may result in a fine of up to $3,000 or, in the case of repeat offenders, $5,000 or a one year sentence.
There are penalties for false statements. A statement may be considered false whether or not it was known to be false at the time by the person making it. The penalty is double the amount of the 'excess' grant - ie the portion that the applicant received over and above what would have been received under a valid claim. Again, the Commissioner may reduce the penalty at his / her discretion should he / she be satisfied that it is 'fair and reasonable' to do so. The Commissioner's assessment of the penalty can be appealed to the Administrative Appeals Tribunal.
Penalties also to apply to unpaid 'designated debts'. A designated debt is a debt resulting from an overpayment or where a claimant has suffered a penalty from making a false statement. Designated debts not paid by the due date incur a 16% per annum interest charge. Such debts can be recovered from third parties where the debtor is owed money by this third party. The Bill also provides for recovery from deceased estates.
The Bill also contains general provisions to prevent unwarranted grants being paid. Accordingly, the Commissioner may disregard schemes entered into for the sole or dominant purpose of creating an entitlement to a grant where, in the absence of the scheme, there would be no such entitlement.
Information gathering and access powers
Part 9 to 12 of the Bill contains provisions dealing with access to information, premises and vehicles.
The Bill proposes to give the Commissioner the authority to compel a person to provide any information or documents or give 'evidence'. The confidentiality of the information obtained by the Commissioner or ATO officers in these circumstances will be protected (see below).
An individual cannot refuse to give information or evidence to the Commissioner on the grounds that providing that information or evidence may incriminate the individual or expose him / her to a penalty. However, such information or evidence cannot be used against the individual in criminal proceedings except where those proceedings relate to failure to comply with requirements under a taxation law, which includes the DFAGS Act and the Bill. Failure to give evidence or provide documents would appear to be an offence under s.8C or 8D of the Taxation Administration Act 1953, which may result in a fine of up to $2,000 or, the case of repeat offenders, $5,000 or a one year goal sentence.
An obligation of secrecy will be imposed on persons who, in the course of their duties relating to the administration of the DAFGS Act, acquire information about the affairs of another person. A person who holds protected information or documents obtained in the course of official employment will be prohibited from making a record of the information or disclosing it to anyone else, except in specified circumstances, namely:
Disclosure of information or the production of a document can be made to a court if it is necessary to give effect to the DAFGS Act. A person acting in the course of official employment will not otherwise be required to produce protected information or documents to a court. There will be no circumstances in which a disclosure of protected information or documents can be made to a Minister. These provisions are consistent with secrecy provisions in other Acts administered by the Commissioner.(13)
On production of an identify card to an occupier, authorised officers must be given entry at any reasonable time to land or premises where those officers have reason to believe that there are documents, goods or any other property that are relevant to the operation of the DAFGS Act. These officers are to be given full access to documents, computer files, goods or other property. The occupier of the land or premises will be obliged to provide the officers seeking access with reasonable facilities and assistance, including advice where relevant information is kept.
If an authorised officer has reasonable grounds to believe that a vehicle is involved in obtaining fuel grants, the officer may stop the vehicle for the purposes of searching it or taking a fuel sample. The driver may be required to provide details about the journey, including consignment notes, passenger manifests or other relevant information. Again, the officer must produce an identity card when exercising these powers.
Item 27 of Schedule 1 inserts new ss.10A-10B into the DAFGS Act.
S.10A enables the Commissioner to make a determination of what constitutes a 'journey'. The Commissioner must consult with the organisations referred to in the background section of this Digest in making a determination.
S.10B gives the statutory formula for working out the amount of the grant entitlement.
Item 33 of Schedule 1 inserts new ss.14A-14B into the DAFGS Act. These sections cover the making of advance grants. Such advances must be accounted for within 21 days of the relevant grant period, otherwise the advance must be repaid.
Item 40 of Schedule 1 inserts the new Parts 4 to 13 (the bulk of the Bill) into the DAFGS Act. To avoid confusion, the proposed major amendments under Item 40 that are listed below are arranged under 'Part' headings - ie Part 4, Part 5 and so on.
Part 4 inserts new ss.17-20 relating to record keeping into the DAFGS Act. The requirements for recording keeping have been discussed in the background to this Digest. However, it is worth noting that applicants are not entitled to a grant unless they have complied with the pre-claim requirements, eg keeping of an adequate diary: s.17(1)(a). Further, if applicants have made a claim, they are deemed to have never been entitled to a grant for the grant period if they have not complied with the post-claim requirements, eg retaining records for 5 years: s.17(1)(b). The implication under s.17(1)(b) is that grantees not complying with post-claim requirements might be required to refund the grant received.
Part 5 inserts new ss.21-25 relating to disqualification for fraud into the DAFGS Act. These have been discussed in the background to this Digest.
Part 6 inserts s.26 relating to contrived schemes into the DAFGS Act. Paragraphs 26(1)(d)-(f) allow the Commissioner to regard the use of fuel, journey or operation as never having happened. The implication is that if the Commissioner makes a determination of 'contrived scheme' after a grant has been made, grantees would be required to refund the grant received.
Part 7 inserts new ss.27-33 relating to civil penalties into the DAFGS Act. These have been discussed in the background to this Digest. Penalties are payable for unpaid designated scheme debts (s.27) and for making false statements (s.28).
Part 8 inserts new ss.34-40 relating to the recovery of scheme debts, including from third parties or deceased estates. In relation to deceased estates, where neither probate nor letters of administration are granted with six month's of a person's death, the Commissioner may make an assessment of the scheme debt and publish this in a State or Territory-wide newspaper. Anyone claiming an interest in the estate and who is dissatisfied with the Commissioner's assessment may mount an objection under the Taxation Administration Act 1953.
Part 9 inserts new ss.41-45 relating to the Commissioner's information gathering powers into the DAFGS Act. These have been discussed in the background to this Digest.
Part 10 inserts new s.46 relating to the protection of confidential information gained by the Commissioner or authorised officers under Part 9 or any other parts of the Bill or the DAFGS Act. The penalty for disclosing confidential information other than under strict guidelines is imprisonment for up to 2 years (s.46(2)). S.46(4) prevents disclosure of information to a Minister.
Part 11 and Part 12 insert ss.47-52 relating to access to premises and the stopping and searching of vehicles. These have been discussed in the background to this Digest.
Item 42 of Schedule 1 inserts a new s.55 which sets out which grants decisions can be appealed to the Administrative Appeals Tribunal. The key issues have been discussed in the background to this Digest.
Item 47 of Schedule 1 inserts a new s.59 which provides that grants are considered as a subsidy under s.15-10 of the Income Tax Assessment Act 1997 and consequently are assessable income for income tax purposes.
1. More background on the DAFGS Act can be found in Bills Digest No. 34 1999-2000.
2. Prime Minister's Website 'Changes to the Goods and Services Tax', http://www.pm.gov.au/media/pressrel/1999/changes3105.htm
3. The Bill contains a revised definition of gross vehicle mass (GVM). The new definition excludes trailers. In the case of a semi-trailer, this seems to mean that the GVM is the weight of the cab and chassis only. Where the tray is an integral part of the truck, the GVM seems to include the tray. The cab and chassis of an average semi-trailer weighs well over 4.5 tonnes.
4. See ss.9-10 of the DAFGS Act.
5. Second reading speech, the Hon John Anderson, House of Representatives Debates 22 June 1999 7050-7051.
6. See for example Senator the Hon Chris Schacht, Senate Debates 28 June 1999 6776-6780.
7. Australian National Audit Office, The Diesel Fuel Rebate Scheme, Report No. 20 1995-96.
8. Ibid. See key findings pp xiv-xviii.
9. Australian Customs Service, 1997-98 Annual Report, p89.
10. S.7(2)(a) of the DAFGS Act.
11. Disallowable instruments are legislative instruments that must be tabled in both Houses of Parliament. A motion disallowing such instruments may by made in either House within 15 sitting days of tabling. If the motion is passed by resolution of the relevant House the instrument ceases to have effect.
12. S.18(2)
13. See for example s.3(5)(a) of the Taxation Administration Act 1953.
Angus Martyn and Richard Webb
7 October 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
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Published by the Department of the Parliamentary Library, 1999.