Saving tax on fuel used in a business

Despite compliance regulations, claiming the credits on fuel tax will help reduce costs at a time when cost pressures are increasing. By TERRY HAYES

By Terry Hayes

Fuel credits tax office

This might seem a bit “left field” in a tax sense, but a tax is a tax is a tax – and that includes fuel tax. If fuel tax can be saved, that’s a saving for any business.

So why am I talking about fuel tax? Well, because since 1 July 2008, many SMEs may for the first time been eligible to save on their tax bill via a fuel tax credit.

In basic terms, fuel tax credits give SMEs a credit for the fuel tax included in the price of the fuel (not only diesel and petrol but also kerosene and heating oil, for example) they use in their business activities, in machinery, in heavy vehicles (not in vehicles of 4.5 tonnes gross vehicle mass or less) and equipment.

The credit is claimed through the tax system and those claiming it must be registered for GST and for fuel tax credits. Different rates of credit apply depending on how the fuel is used in a business, but it can be up to just over 38c per litre. SMEs must self-assess their claims for the credit – such as working out the amount and keeping the necessary records.

Some examples help illustrate who can claim the credit:

  • Those in the fishing industry can claim fuel tax credits at 38.143c per litre used in their fishing vessels.
  • Caravan park operators can claim fuel tax credits at 38.143c per litre for diesel used in a stationary generator used to produce electricity for supply to park residents.
  • A business constructing forestry roads can claim credits (at 38.143c per litre) for diesel and petrol used in machinery that constructs forestry roads.
  • Water taxi operators can claim credits at 38.143c per litre for diesel and petrol used in water taxis.

Fuel tax credits at 38.143c per litre can also be claimed for fuel used:

  • For burning to generate heat eg panel beating, greenhouse heating.
  • To clean machinery parts.
  • As an ingredient in the manufacture of another product – printing inks, paint, plastics, cleaning agents.

From 1 July 2008, fuel tax credits at 19.0715c per litre can be claimed:

  • By a contractor for fuel used in a bobcat, grader, crane, etc.
  • By a forklift operator for diesel or petrol used in a forklift to move materials and products.
  • By a landscaping business for petrol used in equipment such as paving compactors, blower-vacs, ride-on lawnmowers and whipper-snippers.
  • A property management business which looks after the maintenance of rental properties for fuel used in equipment such as lawnmowers and blower-vacs.
  • A plant nursery business for petrol used in equipment such as petrol-operated lawnmowers and blower-vacs used to keep the nursery clean and tidy.

The expansion of the fuel tax credit scheme from 1 July 2008 now means that many more businesses can claim it. However, as with all things to do with the tax system, there are rules that must be complied with. For example, records must be kept to show the amount of fuel bought by a business and how it is used.

Claims for fuel tax credits are made on a BAS, the same way as a business claims its GST credits. SMEs that account for GST on a cash basis can claim the credits in the BAS period they pay for the fuel. Non-cash basis SMEs can claim in the BAS period they receive their invoice for the fuel.

The procedure for working out and claiming the credit can be a little complicated, so it is worth consulting your accountant or adviser to check if you are eligible and how to claim the credit.

For example, a business must work out how many litres of fuel it purchased and then work out how many of those litres are in fact eligible for fuel tax credits. Fuels used in light vehicles (under 4.5 tonnes GVM) or fuel that is stolen are not eligible. Also, fuels such as LPG, compressed natural gas (CNG), LNG, ethanol and biodiesel are not eligible for the credit.

Despite the compliance regulations for the scheme, claiming the credits will help reduce costs for SME at a time when cost pressures are increasing.


Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.


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