Australia: Fuel tax credit available for business use

Businesses currently facing the high cost of fuel need to consider fuel excise tax credits

Businesses currently facing the high cost of fuel need to consider fuel excise tax credits

With the increased cost of petrol and diesel, there is much discussion around the embedded fuel excise of 44.2 cents* per litre in the price of fuel. 

Fuel excise tax, which is indexed to the consumer price index (CPI), generally increases twice a year in February and August. The taxes raised from the fuel excise tax play an important part in funding national road infrastructure. The fuel excise tax is generally only borne by users of light vehicles and partially by trucks with a gross vehicle mass greater than 4.5 tonnes when those vehicles are used on a public road. 

The fuel excise cost for all other business use of fuel has an entitlement to a full fuel tax credit equal to the amount of fuel excise paid.

*Australian currency
 

Determine full fuel tax credit is claimed

The primary purpose of the fuel tax credit is to help business to mitigate some of the added financial strain that arises from the tax on fuel costs. Outlined below are some steps to take to assist with claiming a full fuel tax credit entitlement.
 

Off-road and auxiliary fuel use

Check all fuel being used off-road or in auxiliary equipment is being claimed at the appropriate rate.  While fuel used for traveling on public roads either cannot be claimed for fuel tax credit purposes (light vehicles) or at a lower rate (currently 17.8 cents per litre) for heavy vehicles, when the fuel is used off-road or to power auxiliary equipment, it can be claimed at the full rate of 44.2 cents per litre.

Advances in technology mean fuel used for these purposes can be tracked and measured to an extent that was not previously possible so that claims that include an apportionment for fuel used in this way can be substantiated.
 

Verify the claim for fuel tax credit is at the correct rates

As previously noted, fuel excise is indexed and the rates generally increase bi-annually.  While rates of fuel excise can decrease as well as increase, over time, they have been trending upwards. Taxpayers need to review their historical fuel tax credit claims to determine that workpapers have not been rolled forward, without factoring in contemporaneous rates of fuel tax credit entitlement.
 

Check the fuel pumps

When making bulk fuel purchases and issuing the fuel over time from the taxpayer’s own pumps, determine that those pumps are accurately recording how much fuel is being issued. A desktop data reconciliation exercise is a good initial step and if there is a concern that fuel being issued is not being measured and recorded accurately, the hardware itself may need to be tested. When pumps understate the amount of fuel issued, this can have a real cost because fuel tax credits are being claimed on fewer litres.
 

Other considerations

Determine that governance and processes are sufficient and that policies are being followed. When there is a concern that internal policies are not being adhered to around how fuel is used or the vehicles to which fuel is issued (at the business’s expense), it may be appropriate to undertake a forensic fuel review or audit of fuel card data.
 

Is the taxpayer optimising its fleet?

While the cost of fuel is outside of the taxpayer’s control, the size of the fleet and how the assets are used remains within the taxpayer’s control.  Data analytics can be harnessed to provide insights into how the fleet is currently used and strategies developed that can help reduce the number of assets in the fleet and the jobs each asset is assigned to.
 

Do not overpay fringe benefit tax on company vehicles

Certain tool-of-trade vehicles are potentially exempt from fringe benefit tax, depending on how they are used.  Undertaking a review of how vehicles are used can help identify overpayments of fringe benefit tax. Even when vehicles are not eligible for exemption, tracking operating costs and asking employees to complete a 12-week logbook can provide opportunities to reduce the amount of fringe benefit tax payable on vehicles used privately by the employees.


For more information, contact a tax professional with the KPMG member firm in Australia:

Leonie Ferretter | lferretter@kpmg.com.au

Andy Larmour | alarmour@kpmg.com.au

 

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