Common Errors to Watch Out for When Claiming Fuel Tax Credits

Claiming fuel tax credits can make a real difference to your business’s bottom line, but it’s also an area where many businesses in Australia slip up. The fuel tax credit system gives businesses a tax credit for the fuel tax (excise or customs duty) included in the price of fuel used for eligible business activities. Because rules and fuel tax credit rates change often, and eligibility depends on how and where you use your fuel, it’s easy to make mistakes.

Understanding the Basics of Fuel Tax Credits

Fuel tax credits are designed to give businesses a tax credit for the fuel tax (excise or customs duty) that’s included in the price of fuel used in business activities. If your business uses fuel for machinery, heavy vehicles, or light vehicles on private roads, you might be able to claim fuel tax credits. To claim, your business must be registered for Goods and Services Tax (GST) and for fuel tax credits.

The amount you can claim depends on the type of fuel, how you use it, and the fuel tax credit rates that apply for the tax period when you acquired the fuel. The rates can change, so it’s important to check the latest rates each time you prepare your Business Activity Statement (BAS).

When You Can and Cannot Claim

You can claim Fuel Tax Credits when you use fuel in machinery, plant, or equipment for your business. Claims are also allowed for fuel used in heavy vehicles with a gross vehicle mass over 4.5 tonnes, whether these vehicles are driven on public or private roads. If you use light vehicles off public roads or on private roads, you can also claim fuel tax credits for that use.

However, you cannot claim Fuel Tax Credits for light vehicles with a gross vehicle mass of 4.5 tonnes or less when they are driven on public roads. Fuel used for personal or non-business purposes is not eligible for a claim. Additives such as AdBlue, which are not included in the price of fuel for excise or customs duty, are also excluded from claims.

Fuel tax credits can apply to various types of fuel, including liquid fuels, liquefied natural gas, and compressed natural gas, provided they are used for eligible business activities.

Most Common Mistakes When Claiming Fuel Tax Credits

Many businesses make similar mistakes when they claim fuel tax credits. Knowing what to watch for can help you avoid these issues and ensure your claims are correct.

Claiming for Ineligible Vehicles or Activities

A frequent error is claiming tax credits for fuel used in vehicles or for activities that aren’t eligible under the fuel tax credit rules. For example, claiming for fuel used in light vehicles on public roads is not allowed. If you use a ute or other light vehicle both on and off public roads, you need to work out how much fuel is used for each activity and only claim for the eligible portion.

It’s also important to know that only fuel used for business activities is eligible. If you use fuel for private purposes or for non-business use, you can’t claim a tax credit for that fuel.

Using Incorrect Fuel Tax Credit Rates

Fuel tax credit rates change regularly. Using the wrong rate is a common mistake that can lead to underclaiming or overclaiming. The rate depends on when you acquired the fuel, the type of fuel, and how it’s used. For example, the rate for liquid fuels used in heavy vehicles on public roads is different from the rate for fuel used in auxiliary equipment or off-road business activities.

Always check the current fuel tax credit rates for each tax period, and make sure you’re using the rate that matches the date you acquired the fuel, not the date you used it. This is especially important if you buy fuel in bulk or across different periods.

Poor Record-Keeping Practices

Good records are essential for a correct fuel tax credits claim. You need to keep:

• Invoices or receipts showing the price of fuel and the excise or customs duty included in the price
• Records of how much fuel you bought and how it was used (for example, business use versus private use)
• Details on how you calculated your claim, such as logbooks or fuel usage records

If your records aren’t complete or accurate, it can be difficult to support your claim if the ATO asks for evidence. Even if you use the simplified fuel tax credits (basic method) for small claims, you still need to keep basic records to show your calculations.

Misunderstanding Apportionment Rules

If you use fuel for both eligible and ineligible activities, you need to apportion your claim. For example, if a diesel vehicle is used both on public roads and private roads, or if machinery is used for both business and personal tasks, you can only claim for the business use portion. Not splitting the fuel use correctly can result in overclaiming or underclaiming.

Failing to Adjust for Changes in Use

Sometimes, the way you use fuel changes after you’ve made a claim. For example, you might have planned to use fuel for off-road business activities but ended up using it in a heavy vehicle on public roads. If this happens, you need to adjust your claim on your next business activity statement BAS to reflect the actual use. Not making these adjustments can lead to incorrect claims.

How to Avoid These Mistakes

There are simple steps you can take to avoid common errors and make sure your fuel tax credits claim is accurate.

Use the ATO’s Tools and Resources

The ATO offers helpful tools to guide you through the fuel tax credit process. The fuel tax credit eligibility tool helps you check if your business activities and fuel use qualify. The fuel tax credit calculator applies the correct rates for your tax period and fuel type, making it easier to get your claim right.

Keep Good Records

Set up a system to keep all your fuel purchase records, including invoices that show the price of fuel and any excise or customs duty included in the price. Keep logbooks or other records that show how fuel is used across different business activities, especially if you use fuel for both eligible and ineligible purposes. Good records make it easier to calculate your claim and respond to any questions from the ATO.

Check the Latest Fuel Tax Credit Rates

Because Fuel Tax Credits rates change, always check the current rates before you prepare your BAS. This helps you claim the correct amount for each tax period and avoid mistakes. If you use different fuels, such as liquefied natural gas or compressed natural gas, check the rates for each type.

Understand the Simplified Fuel Tax Credits Method

If your fuel tax credits claim is under a certain threshold, you might be able to use the simplified fuel tax credits (basic method). This method makes it easier to calculate claims for small amounts, but you still need to keep basic records to support your claim.

What to Do If You’ve Made a Mistake

If you realise you’ve made a mistake on a previous BAS, you can usually correct it on your next business activity statement. For example, if you claimed too much because you used the wrong fuel tax credit rates or didn’t apportion your business use correctly, you can adjust your claim on your next BAS. Make sure to use the rate that applied when you first made the claim.

If you’re not sure how to fix an error, or if you think you might have made mistakes over several tax periods, it’s a good idea to seek advice. A professional accountant can help you review your claims and make any necessary corrections.

Conclusion

Fuel tax credits can help your business save on tax, but only if you claim them correctly. By understanding who can claim, which business activities are eligible, and how to use the right fuel tax credit rates, you can avoid common errors. Keeping good records and checking your claims for each tax period will help you stay compliant and get the most from the fuel tax credit system.

If you’re unsure about any part of your fuel tax credits claim, or if you need help reviewing previous BAS statements, our team is here to support you. Taking the time to get it right now can save you time, money, and stress down the track.