For civil construction and transport businesses, fuel can be one of the highest operating costs – so ensuring you’re claiming the full fuel tax credit (FTC) entitlement available to your business is critical.
One of the most common issues we see is businesses applying a single fuel tax credit rate across all their fuel use or automatically relying on an ATO-approved percentage to split fuel between public road travel and other uses.
The reality is more nuanced.
Depending on how and where fuel is used, different fuel tax credit rates can apply. For businesses operating heavy vehicles with auxiliary equipment, there may also be scope to use a fair and reasonable method based on your actual circumstances, rather than simply relying on the standard percentages published by the Australian Taxation Office (ATO).
For businesses with significant fuel consumption, getting this apportionment right can make a meaningful difference to cash flow.
Fuel tax credits: Not all fuel use is treated the same
Fuel tax credits are available for eligible taxable fuel used in carrying on a business, including fuel used in construction activities and in heavy vehicles, machinery and equipment.
For heavy vehicles, however, the treatment depends on what the fuel is being used for.
Broadly, fuel may be used for:
- travelling on public roads
- travelling off public roads, such as on construction sites or private roads
- operating auxiliary equipment fitted to a heavy vehicle
- idling or other eligible uses.
These uses do not necessarily attract the same fuel tax credit treatment.
For example, fuel used by an excavator, grader or other eligible construction machinery away from public roads can generally qualify for the full applicable fuel tax credit rate. Fuel used by a heavy vehicle for travelling on a public road is subject to the road user charge, which reduces the fuel tax credit available for that portion of the fuel use.
Importantly, fuel used to operate auxiliary equipment on a heavy vehicle is not reduced by the road user charge simply because the vehicle is travelling on a public road.
This means that simply applying one rate to all fuel purchased by a business can result in an incorrect claim.
The 90/10 split isn’t necessarily the answer
A common misconception is that businesses must use a particular percentage to determine how much fuel relates to auxiliary equipment.
The ATO does provide accepted percentages for certain types of heavy vehicles and auxiliary equipment under Practical Compliance Guideline PCG 2016/11. For example, the guideline provides accepted percentages for certain concrete transit vehicles, refrigerated vehicles, waste management vehicles and vehicles fitted with specialised equipment.
These percentages provide a practical way for eligible businesses to calculate their claims.
However, the ATO’s percentages are not mandatory.
PCG 2016/11 expressly states that an entity can use a percentage determined using another apportionment methodology, provided the methodology is fair and reasonable in the circumstances. An alternative methodology can also be applied retrospectively, subject to the applicable time limits for claiming fuel tax credits.
That distinction is important.
If your business has evidence showing that the actual proportion of fuel used for auxiliary equipment is different from the ATO’s standard percentage, it may be possible to use that evidence to support a different allocation.
Fuel tax credits in practice: A civil construction and transport example
Consider a heavy truck used to travel between construction sites, with auxiliary equipment powered from the truck’s engine.
The business may initially rely on an ATO-accepted percentage to determine the amount of fuel attributable to the auxiliary equipment and the amount attributable to travelling on public roads.
But what if the auxiliary equipment uses considerably more fuel than the standard percentage assumes?
Rather than automatically accepting the standard allocation, the business could investigate whether it can establish a more accurate fuel usage split.
This might involve obtaining information from the equipment manufacturer about fuel consumption, reviewing operating data, considering how the equipment is actually used and establishing a methodology that can be consistently applied and supported by appropriate records.
This is not about choosing the percentage that produces the largest claim. The methodology needs to reflect the business’s actual circumstances and be capable of being substantiated as fair and reasonable.
A real-world lesson: look beyond the standard percentage
In one case involving a heavy vehicle with auxiliary equipment, the business had been relying on the ATO’s standard apportionment methodology.
The business’s actual fuel consumption, however, indicated that the auxiliary equipment was using a different proportion of the fuel than the standard percentage assumed.
By gathering information from the equipment manufacturer about the fuel consumption of the auxiliary equipment, the business was able to establish a more appropriate split between fuel used for public road travel and fuel used for the auxiliary equipment.
This resulted in additional fuel tax credits being claimed.
Just as importantly, the exercise established a process the business could continue using going forward. Rather than treating the fuel tax credit claim as a once-a-year tax exercise, the business had a clearer method for tracking its fuel usage and supporting its claims.
Better fuel tracking for more accurate fuel tax credits
There can be another benefit to reviewing fuel usage in detail.
The same information used to support a fuel tax credit calculation can provide useful operational insights.
For example, tracking fuel consumption by the following, can help identify unusual fuel consumption or operational inefficiencies:
- vehicle
- machine or item of equipment
- project or worksite
- hours of operation
- kilometres travelled
- auxiliary equipment use
For a transport or civil construction business operating a fleet of trucks and machinery, understanding how much fuel is being consumed to move equipment, travel between sites or operate machinery can be valuable well beyond the calculation of an FTC claim.
A better understanding of fuel consumption can therefore support both tax compliance and operational decision-making.
Are you potentially underclaiming fuel tax credits?
It may be worth reviewing your fuel tax credit methodology if:
- you operate heavy vehicles with auxiliary equipment
- your vehicles spend significant time on construction sites or private roads
- you use machinery such as excavators, graders, rollers, loaders or other plant
- you rely on standard ATO apportionment percentages without reviewing whether they reflect your actual circumstances
- your equipment or vehicle configuration has changed
- you have introduced new machinery or auxiliary equipment
- you have never reviewed how your fuel usage is apportioned
- you have detailed fuel, GPS, telematics or equipment manufacturer data that isn’t currently being used in your FTC calculations.
A review doesn’t necessarily mean changing your methodology. In some circumstances, the ATO’s accepted percentage may be the most practical and appropriate approach. The key is understanding why the methodology is appropriate and whether it continues to reflect your circumstances.
Don’t overlook historical fuel tax credit claims
If a business discovers that it has been underclaiming fuel tax credits, it may be possible to claim previously unclaimed credits, subject to the applicable time limits.
The ATO generally imposes a four-year time limit on fuel tax credit entitlements. Unclaimed credits can generally be claimed on a current activity statement where the claim is still within the relevant four-year period. When claiming a credit relating to an earlier period, the rate that applied when the fuel was acquired must be used.
This makes it worthwhile for businesses that have never reviewed their FTC methodology to consider whether a historical review is warranted.
Getting your fuel tax credit apportionment right
For businesses in civil construction, transport and related industries, fuel tax credits can represent a significant cash flow opportunity. But maximising the claim should not mean simply selecting the highest available rate.
The focus should be on identifying how fuel is actually being used, applying the appropriate treatment to each use and maintaining records that support the calculation.
The ATO’s standard percentages can provide a straightforward approach, but they are not necessarily the only approach available.
If your business has reliable information about actual fuel consumption, particularly for auxiliary equipment, it may be worth reviewing whether your current methodology accurately reflects your operations.
The result could be a more accurate fuel tax credit claim, improved cash flow and better visibility over fuel usage across your business.
What should businesses do now?
Start by looking at the way your current fuel tax credit claim is calculated.
Ask:
- What fuel is being used for travelling on public roads?
- What fuel is being used away from public roads?
- Is any fuel being used to power auxiliary equipment?
- What percentage or methodology are we currently applying, and why?
- Does that methodology reflect our actual operations?
- What evidence do we have to support the apportionment?
- Could manufacturer, telematics or fuel consumption data provide a more accurate picture?
Matthews Steer can help businesses review their fuel tax credit methodology, assess whether their current apportionment is appropriate and establish processes to support future claims. Contact us to speak to one of our experienced advisors.
A note on fuel tax credit rates
Fuel Tax Credit rules and rates can change. Businesses should ensure they use the rates and requirements applicable to the relevant fuel acquisition period and obtain professional advice based on their individual circumstances.
Anthony Seneca is a Partner at Matthews Steer, working closely with businesses across the civil construction and transport sectors. He has extensive experience advising businesses on tax, compliance and financial matters, including fuel tax credits and identifying opportunities to improve cash flow and operational efficiency.