Indirect taxes
Fuel tax credits
Fuel tax credits give eligible businesses a credit for the fuel tax included in the price of fuel used in machinery, equipment and certain heavy vehicles, claimed through the BAS.
Fuel tax credits are a federal scheme that gives businesses a credit for the fuel tax, which is excise or customs duty, included in the price of fuel they use for certain business activities. The idea is that fuel tax is intended to help pay for road use, so fuel used off public roads or in heavy vehicles should be partly or fully relieved of it.
Eligibility depends on what the fuel is used for. Fuel used in machinery, plant and equipment, such as tractors, generators and excavators, can generally qualify. Fuel used in vehicles with a gross vehicle mass above a threshold set in the law, when travelling on public roads for business, can qualify at a lower rate. Fuel used in light vehicles on public roads generally does not qualify at all, which surprises many small business owners.
To claim, a business must be registered for GST and have an ABN, and it must keep records of the fuel acquired and how it was used. Credits are claimed through the BAS, and the business works out the amount by multiplying the litres of eligible fuel by the credit rate for that fuel and activity. The rates are reviewed and changed regularly, so check ato.gov.au for the current rates rather than using an old table.
Records are important. You need evidence of the fuel you bought, such as tax invoices, and records showing how much was used in each eligible activity, for instance logbooks, hours of machine operation, or calculations based on usage. Records must generally be kept for five years. Estimates need a reasonable basis, because the ATO can review claims and adjust them where the evidence is weak.
Fuel tax credits are separate from GST credits. You can claim a GST credit on the GST included in the fuel price and also a fuel tax credit on the fuel tax portion. Fuel tax credits are generally treated as assessable income for income tax, so the credit received is included in your income tax return.
Common mistakes include claiming for fuel in light vehicles on public roads, claiming the wrong rate or period, and keeping no usage records. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered farmer buys 5,000 litres of diesel for tractors and irrigation pumps. Assume, for illustration, the fuel tax credit rate for that use is $0.50 per litre. The fuel tax credit is 5,000 x $0.50 = $2,500, claimed on the BAS. The farmer also claims a separate GST credit on the GST in the fuel invoices, and keeps records of how much was used in each machine.
Practical tips
- Light vehicles on public roads generally do not qualify, so exclude them from your claim.
- Keep tax invoices and usage records for each eligible activity, as you may need them for five years.
- Check the current credit rates on ato.gov.au, because they change.