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Fuel your desires!

Tax Telegraph, August 2013

Fuel your desires!Increasing business costs and a fluctuating Aussie dollar have been putting pressure on more than a few Australian businesses during the past year. Interestingly rising fuel costs are also now contributing to the ‘squeezed’ margins being experienced throughout the Australian marketplace.

With this in mind, wouldn’t it be nice to get a little relief from the ATO? Well, hold that thought and read on…

Fuel tax credits are not to be sneezed at

There’s 38.143 cents per litre of excise or customs duty embedded in the cost of liquid fuel such as petrol and diesel. Since 1 July 2006, fuel tax credits (FTCs) have been available for fuel used in heavy vehicles travelling on public roads and in a range of specified business activities. However, unbeknown to many  business operators who use fuel in their everyday operations, the Government expanded the FTC eligibility criteria in 2008, entitling more business taxpayers to claim FTCs in a broader range of circumstances. There have also been more recent changes to the FTC rules that have increased the size of the FTC entitlement for certain off-road fuel uses. Depending on the fuel type and the activity the fuel is used in, FTCs of up to 38.143 cents per litre of fuel are potentially available.

Are you eligible to claim FTCs?

The obvious question is, who is entitled to claim these FTCs? First, to be eligible to make a claim, you must satisfy these two requirements:

  • At the time you acquire the taxable fuel, you must be registered for both GST and fuel tax credits, and
  • You must acquire the fuel (or manufactured or imported it into Australia) for use in carrying on your enterprise (i.e. not for a private use).

Second, you need to consider if a claim is ruled out for one of the following reasons:

  • Another entity was previously entitled to a FTC for the fuel
  • The fuel was used in a light vehicle (less than 4.5 tonnes gross vehicle mass) travelling on a public road
  • The fuel was not used because it was lost, stolen or otherwise disposed of
  • The fuel was aviation fuel.

The FTC system applies to fuel used in a very wide range of applications including, for example, in road and non-road transport, mining, agriculture, fishing, forestry, construction, manufacturing, electricity generation, wholesaling/retailing, nursing and medical, property management, landscaping and burner applications. There are various criteria that exist for specific circumstances so its always best to consult your tax adviser to check your eligibility.

Bottom line savings for businesses

Perhaps we can best illustrate the benefits of the FTC scheme with a practical example (Note: we have only considered the fuel tax implications in this scenario)…

Bill owns a grounds maintenance and open space landscaping business called Green Open Spaces Pty Ltd which is registered for GST. The business provides services to local councils, schools and the like, mowing sports grounds, parks and road verges; tree planting and lopping; establishing and maintaining public garden beds; etc.Green Open Spaces has several fuel-driven machines that are used by Bill’s employees to undertake mowing, maintenance and other activities. Bill has kept all of the fuel reciepts and claims FTCs when lodging the BAS for Green Open Spaces each quarter. During the quarterly period 1 January 2013 to 31 March 2013, Bill made the following taxable fuel acquistions for the business:

Equipment Fuel type/quantity FTC calculation
Ride on tractor mowers and lawn mowers Unleaded petrol (1500L)
Avg. price $1.33/litre
FTC rate = 0.32623c/litre
FTCs claimed in BAS = 0.32623 x 1500L = $489.35
Back up generator Unleaded petrol (240L)
Avg. price $1.33/litre
FTC rate = 0.32623c/litre
FTCs claimed in BAS = 0.32623 x 240L = $78.30
Whipper snippers Unleaded premium petrol (264L)
Avg. price $1.48/litre
FTC rate = 0.32623c/litre
FTCs claimed in BAS = 0.32623 x 264L = $86.13
Mulchers Diesel fuel (453L)
Avg. price $1.43/litre
FTC rate = 0.31933c/litre
FTCs claimed in BAS = 0.31933 x 453L = $144.66

Based on these calculations, Green Open Spaces is entitled to claim FTCs totalling $798.44 in its BAS for the quarter.

During the period Bill also used the services of his regular chip bark supplier, Chips ‘R Us Pty Ltd, to have  speciality chip bark delivered for a new school playground. Included on the invoice Chips ‘R Us gave to Green Open Spaces was the fuel cost for this delivery. Being the commercially pro-active entreprenuer he is, Bill has negotiated that all of his invoices from Chips ‘R Us  must take into account the fact that Chips ‘R Us can claim FTCs for the fuel it uses in its chippers and delivery trucks. Although Green Open Spaces is not the entity entitled to claim these FTCs, Bill has saved on the overall cost of the job by being aware of what other businesses are entitled to claim.

But that’s not all…

It should be noted that the FTC scheme extends beyond liquid fuels such as petrol and diesel. FTCs are also available for some blended fuels, and in certain circumstances for  mineral turpentine, kerosene and the like. Several gaseous fuels have recently been brought into the fuel tax regime and there may be situations where FTCs can be claimed for them.

A recent dispute between a transport company and the ATO resulted in the ATO conceding that fuel used to power auxillary equipment in/on a heavy road vehicle qualified for a higher rate of FTC than the fuel used to propel the vehicle. This changed treatment by the ATO has opened the door for significant FTC claims (retrospective and prospective) by a range of businesses in respect of fuel used to power equipment such as refrigerated cooling units, air-conditioning units for buses and truck sleeper cabins, compacters on garbage trucks, cement mixer agitators, etc.

The potential refund of up to 38.143c for every litre of fuel used in eligible activities offers significant bottom line savings to business. In our experience however, there are many businesses that are either unaware of the extent of their FTC entitlements or find it administratively difficult to recover all of them. Deloitte’s fuel tax specialists can help your business to identify, quantify and/or substantiate your FTC entitlements, including on a retrospective basis going back four years.

With all of this in mind there has never been a better time to explore your FTC opportunities. So go on, fuel your desire, and speak to a Deloitte tax consultant today to get a clearer picture of your entitlements.

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Editor – Tax Telegraph
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