Fuel Tax Credits (FTCs) – Advice for Australian Business Operators

June 28, 2011 by  Filed under: Taxes 

The Australian Taxation Office (ATO) offers some relief to business operators who utilise fuel in their business operations in the form of ‘Fuel Tax Credits’ (FTCs). These credits essentially refund the tax/excise/duty included in the price of fuels used in the course of business operations.

In July 2008, the ATO effectively made FTCs available to more businesses through expanding its list of eligible activities. Although applicable for some time now, the expansion in eligible activities to claim back fuel tax credits was somewhat overshadowed at the time by the Government’s tax break for capital investment in new business assets. However, it is of just as much significance.

Whilst the investment allowance permitted a once-off tax deduction, the FTC’s are calculated at the same time as GST on the Business Activity Statement (BAS), meaning that the cash flow benefits are available throughout the course of the year.

Who is eligible?

Taxpayers are eligible to claim back fuel tax credits if:

1. They are conducting a business and undertaking eligible activities

2. They register for FTCs

3. They use eligible fuel in their plant & equipment or vehicles in relation to that business

4. They are also registered for GST

What fuels can you claim?

Credits can be claimed back on:

• Diesel and petrol

• Kerosene, heating oil, toluene, fuel oil

• Mineral turpentine and white spirit

Regardless of activity or use, credits cannot be claimed back for:

• Aviation fuels

• Alternative fuels, such as liquefied petroleum gas, compressed natural gas, liquefied natural gas, ethanol, biodiesel

Eligible equipment and activities

In most cases, it is the activity and the fuel that determines eligibility for credits rather than the equipment used. Fuel used in most equipment, tools, machinery and heavy vehicles is eligible. However, an important exclusion is fuel used in vehicles travelling on a public road with gross vehicle mass (GVM) of less than 4.5 tonnes. (for example passenger cars, small delivery vans or utes)

The range of eligible activities is now very broad and can include fuel consumption in the course of conducting a business engaged in:

• Agriculture

• Fishing

• Forestry

• Mining

• Rail transport

• Construction

• Manufacturing

• Nursing and medical

• Marine transport

• Wholesale/retail

• Property management

• Landscaping

For example, a nursing facility powering air conditioning with eligible fuel can claim credits back on their BAS, much the same way a landscaper would for using fuel to power bobcats, chainsaws or lawnmowers.

The eligible activities can also extend to generating electricity for your business and ‘non-fuel’ use including fuel used for cleaner, burner application or as an input/ingredient in the manufacture of products.

Claiming the Fuel Tax Credit

FTCs are claimed back on the same BAS that reports the GST obligations of the business to the ATO. The credit is calculated under a self-assessment system and is based on the litres of eligible fuel consumed for the relevant period.

Broadly speaking, the formula is: Eligible litres x applicable rate = $ claimed back. The credit forms part of the payment or refund for that BAS, where it will either reduce a payment or increase a refund. Rates vary depending on the activity and the fuel. From 1 July 2010, the rates are either 15.543 cents per litre, 19.0715 or 38.143 cents per litre.

Income tax still applies

Although effectively a cash refund from the Government, FTCs are not a complete freebie. Any FTCs received are included as assessable income of the recipient entity when calculating its annual tax liability. FTCs are also regarded as PAYG Instalment income and thus are included in the calculation of quarterly income tax instalments if applicable.

For a comprehensive list of activities, rates and other eligibility criteria, refer to the ATO’s Fuel Tax Credits For Business Guide (NAT 14584) available at http://www.ato.gov.au.

If you would like to discuss your eligibility, please contact your local Accru office.

Accru is a leading network of independently-owned chartered accounting firms in Australia and New Zealand. We combine the personalised approach of a local firm with the skills and networks of larger scale organisations to create positive financial solutions for our clients.

Accru can provide you with expert advice on business accounting, tax, audit, business management, outsourced accounting, international tax, financial planning and litigation support. Keeping this in mind, as a chartered accounting firm catering to every size and type of business, no job is too big or too small. Their business in Australia is based on “putting people first” and that is their affirmed point of difference.

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