Are You Claiming All Eligible Fuel Tax Credits? A Practical Guide for Businesses

Eligibility Requirements for Fuel Tax Credits

Not every business qualifies for FTC, and not all fuel uses are eligible. To claim Fuel Tax Credits, your business must meet several basic requirements.

First, you need to be registered for both Goods and Services Tax (GST) and Fuel Tax Credits (FTC). You must have an Australian Business Number (ABN) and use eligible fuel types for qualifying business activities. Most businesses that use fuel in their operations will meet these basic criteria, but specific eligibility depends on how you use the fuel.

To avoid confusion and costly mistakes regarding GST in Australia, read our article on What is the GST Rate. 

Eligible Fuel Types

Most common fuel types used in business activities qualify for Fuel Tax Credits. These include:

• Diesel fuel (the most commonly claimed)

• Petrol

• Liquefied petroleum gas (LPG)

• Liquefied natural gas (LNG)

• Compressed natural gas (CNG)

• Biodiesel

The Fuel Tax Credit rates vary depending on the type of fuel used and the specific activity it powers. It’s worth noting that the rates change regularly due to indexation and other factors, so staying current with the latest rates is essential for accurate claims.

Eligible Business Activities

The way you use fuel determines whether you can claim fuel tax credits and how much you can claim. Generally, you can claim credits for fuel used in:

• Machinery, plant, and equipment

• Heavy vehicles (those with a gross vehicle mass over 4.5 tonnes)

• Light vehicles travelling off public roads or on private roads

• Auxiliary equipment of heavy vehicles (such as refrigeration units or pumps)

• Generators and other stationary applications

It’s important to note that fuel used in light vehicles (4.5 tonnes or less) traveling on public roads is generally not eligible for fuel tax credits. This exclusion reflects the policy that the fuel excise serves as a road user charge for such vehicles.

How to Calculate Your Fuel Tax Credits

Calculating fuel tax credits can seem complex because the fuel tax credit rates change regularly and vary based on when you acquired the fuel, what fuel you use, and the activities you use it for.

Fuel tax credit rates are updated twice a year, in February and August, based on the Consumer Price Index (CPI). Rates for fuel used in heavy vehicles on public roads may also change if the road user charge changes. From 3 February 2025, the CPI indexation factor is 1.004.

Using the ATO’s Fuel Tax Credit Calculator

The Australian Taxation Office (ATO) provides a fuel tax credit calculator that simplifies the calculation process. This online tool helps you:

• Determine the correct fuel tax credit rates based on when you acquired the fuel

• Calculate credits based on your specific business activities and business use

• Account for any special circumstances or exemptions, such as fuel used in a separate fuel tank or for auxiliary equipment

• Prepare figures for your Business Activity Statement (BAS)

Using the calculator is the most reliable way to ensure accuracy in your claims, especially given the frequent rate changes.

To avoid BAS errors and ATO penalties, read our article on How to Prepare Accurate BAS for step-by-step guidance on correct record-keeping, reconciliation, and lodgment by a qualified BAS agent

Simplified Methods for Small Claims

If your business claims less than $10,000 in fuel tax credits annually, you can use simplified fuel tax credits methods to calculate your claims. These methods reduce the record-keeping burden and make the claiming process more straightforward.

For heavy vehicles traveling on public roads, the basic method involves multiplying the litres of diesel used by the applicable rate for heavy vehicles. This approach simplifies calculations and reduces the administrative burden for smaller businesses.

Claiming Process: Step-by-Step Guide

Claiming fuel tax credits involves completing specific labels on your Business Activity Statement (BAS). The process is straightforward once you understand the requirements.

First, calculate the fuel tax credits you’re entitled to for the tax period. Then, complete label 7D on your BAS to claim your fuel tax credits. If you need to decrease an entitlement to a previously claimed credit, use label 7C (Fuel Tax Credit overclaim).

Generally, you can claim fuel tax credits at the time you acquire, manufacture, or import taxable fuel into Australia. If you account for GST on a cash basis, claim your credits in the same BAS period you pay for your fuel. If you use a non-cash basis, claim in the period you receive your invoice.

Timing and Limitations

There’s a four-year time limit for claiming fuel tax credits or making adjustments. You need to claim your credits within four years of the due date of the earliest BAS in which you could have made your claim. If you miss this window, you’ll no longer be eligible to claim those credits.

Record-Keeping Requirements

Proper record-keeping is crucial for supporting your fuel tax credit claims and ensuring you can substantiate them if questioned by the ATO.

1. Fuel Purchases – Keep receipts and invoices that show the price of fuel and any excise or customs duty included in the price.

2. How the Fuel Was Used – Document how the fuel was used in your business, including whether it powered machinery, equipment, or vehicles.

3. Calculations Used – Maintain clear records of the calculations used to determine your claim.

4. Logbooks or Usage Records – Keep any relevant logbooks or usage records, especially for light vehicles or where fuel is used in both eligible and ineligible activities.

5. Loss, Sale, or Disposal of Fuel -Record any loss, sale, or disposal of fuel.

For businesses using vehicles for both eligible and ineligible purposes, keeping a logbook is particularly important to distinguish between business and private use.