Fuel tax credits can provide a significant tax benefit for Australian businesses, reducing the cost of fuel used for business operations. If your business uses fuel in vehicles, machinery, or other equipment, it’s important to understand how fuel tax credits work and whether your business is eligible to claim them.

What Are Fuel Tax Credits?

Fuel tax credits offer businesses a rebate for the fuel excise (tax) included in the price of fuel that is used in certain business activities. These credits effectively reduce the cost of fuel, providing a benefit for businesses that rely heavily on fuel consumption.

The amount you can claim depends on several factors, including how and where the fuel is used.

Eligible businesses can claim fuel tax credits on fuel used in:

• Machinery, plant, and equipment.
• Heavy vehicles travelling on public roads.
• Light vehicles travelling on private property.
• Other eligible business activities like construction, mining, agriculture, and more.

Who Is Eligible for Fuel Tax Credits?

To claim fuel tax credits, your business must meet certain eligibility criteria. The primary consideration is that the fuel must be used for business purposes, and the rate of credits available will vary depending on how and where the fuel is used.

Here are the key eligibility requirements:

• Business Use: The fuel must be used for business purposes. This includes fuel used in heavy vehicles over 4.5 tonnes, as well as fuel used in machinery and other equipment for off-road business activities.

• Industry: Certain industries are more likely to be eligible for higher fuel tax credits, such as agriculture, fishing, forestry, mining, and construction. For example, fuel used in machinery on farms or in mining equipment typically attracts higher fuel tax credits.

• Fuel Types: Not all fuels are eligible for fuel tax credits. The most common eligible fuels include diesel, petrol, LPG, and other liquid fuels used in business activities. However, some alternative fuels may also qualify under specific circumstances.

• Heavy Vehicles: If you use heavy vehicles (over 4.5 tonnes gross vehicle mass) on public roads, you can claim fuel tax credits, though the rate will be lower due to a reduction for the road user charge. However, heavy vehicles used off public roads (for example, on construction or mining sites) attract higher rates of fuel tax credits.

• Record-Keeping: Accurate record-keeping is essential for businesses claiming fuel tax credits. You need to keep records of the amount of fuel purchased, how it was used, and the business activities it supported. This helps ensure that your claim is accurate and can be substantiated if the Australian Taxation Office (ATO) requires verification.

How Fuel Tax Credits Work

Fuel tax credits operate as a rebate or credit against the fuel excise that businesses pay when purchasing fuel. Here’s how it typically works:

• Purchase of Fuel: Your business purchases fuel for its operations, which includes a fuel excise in the cost.

• Determine Eligible Use: The next step is to determine how the fuel will be used, whether for heavy vehicles on public roads, machinery, or other eligible business purposes. You’ll need to keep detailed records to ensure the correct fuel use classification.

• Claiming Fuel Tax Credits: Fuel tax credits are claimed via your Business Activity Statement (BAS). Each time you lodge your BAS, you can include the fuel tax credits for the period. The amount you can claim depends on the rate set by the ATO, which varies based on the fuel type and usage. These rates can change regularly, so it’s important to check the current rates before lodging your claim.

• Credits Applied to Tax Payable: Once your fuel tax credits are claimed through your BAS, they are offset against the tax you owe on your activity statement. In some cases, businesses may receive a refund if the amount of fuel tax credits exceeds the tax liability.

Common Errors and How to Avoid Them

While fuel tax credits offer a valuable financial benefit, there are common mistakes businesses can make when claiming them. Some of the most frequent errors include:

• Incorrect fuel classification: It’s important to distinguish between fuel used in heavy vehicles on public roads and off-road machinery or equipment, as the rates differ.

• Insufficient records: Failing to maintain adequate records of fuel usage can result in incorrect claims or issues if the ATO conducts an audit.

• Claiming ineligible fuel: Ensure that the fuel you are claiming is eligible for fuel tax credits, as not all fuels qualify.

Maximising Your Fuel Tax Credit Claims

To make the most of fuel tax credits, consider the following tips:

• Regularly check the ATO’s fuel tax credit rates: The rates can change based on adjustments to the fuel excise. Keeping up to date ensures you’re claiming the correct amount.

• Ensure proper allocation of fuel use: If your business uses fuel for both eligible and ineligible activities, make sure you allocate the fuel usage appropriately in your records.

• Stay informed about ATO changes: The ATO frequently updates rules and rates, so staying informed helps ensure your business remains compliant while maximising its benefits.

Fuel tax credits are a valuable way for Australian businesses to reduce the cost of fuel used for eligible business activities. Understanding the eligibility criteria, keeping accurate records, and regularly reviewing ATO updates will ensure that you can maximise your claims and improve your business’s bottom line.

For more information on your specific circumstances, make an appointment with us today.