Fuel Tax Credits (Australia) — Part 2
The Technical Framework Auditors Care About
Part 1 covered the basics of eligibility and common errors of Fuel Tax Credits we see as tax accountants in Perth. In Part 2, we focus on the technical framework that underpins compliant Fuel Tax Credit (FTC) claims — the legislation, ATO guidance, accepted methods, and the governance signals auditors and BAS reviewers look for.
The Legislative Backbone of FTC (what actually gives you the credit)
- Fuel Tax Act 2006 (FTA 2006)
- s41-5 — Core entitlement to an FTC for taxable fuel acquired for use in carrying on an enterprise.
- s41-20 — Exclusions, notably light vehicles (≤4.5 t GVM) travelling on a public road.
- s43-10 – Reduced FTC when RUC applies
- s60-5 — Defines the net fuel amount calculation (how FTCs flow through the BAS).
- Road user charge (RUC) interaction
- On-road heavy-vehicle claims are reduced by the RUC (the “on-road” rate).
- Changes typically occur 1 July (RUC) and early Feb / early Aug (indexation).
- Excise Tariff Act 1921 and Customs Tariff Act 1995
- Define the duties being effectively credited back via the FTC.
Why it matters: The bests source of knowledge about taxation is the underlying tax law itself including the legislation, the court cases, and then the ATO rulings and determinations. The law is what are what ATO tax auditors tie your working papers to. If your team, policy document, workings and BAS labels reconcile to these provisions, reviews go faster.
ATO Rulings & Practical Guidance (what ATO Tax auditors actually use)
The ATO issue tax rulings and PCG notes, and these are a primary source of guidance for ATO Tax auditors when looking at a SME.
- FTR 2008/1 — How to work out the amount of FTC for vehicles that travel on public roads, including incidental travel and the RUC overlay.
- PCG 2016/8 — Apportionment: ATO-accepted ways to work out eligible vs ineligible use on a “fair and reasonable” basis (sampling, percentages, proxies).
- PCG 2016/11 — Auxiliary equipment (heavy vehicles): Accepted percentage methodologies for equipment powered by the vehicle’s fuel (e.g., refrigeration units, agitators, PTO-driven gear).
ATO tools & worksheets
FTC calculator / rates pages (always use the current year page).
- Fuel tax credits calculation worksheet (NAT 15634) to evidence your arithmetic.
Westcourt Tax Tip: Use PCG 2016/11 for heavy vehicles, and treat light vehicles very cautiously.
Fuel Tax Credit Rates & Timing (why “February/August” isn’t the whole story)
- Indexation: Rates typically move in early February and early August.
- RUC reset: The on-road heavy-vehicle category can also change 1 July with any RUC adjustment.
Westcourt Tax Tip: Build a system that timestamps the rate set used for each BAS period and links to the ATO rate page captured on that date.
Auxiliary Equipment — where most technical mistakes occur
- Heavy vehicles: Use PCG 2016/11 percentages or an equivalent evidence-based method for fuel powering fridges, agitators, PTOs, etc. Keep the working papers (assumptions, vehicle classes, % applied).
- Light vehicles (≤4.5 t GVM): Fuel used while travelling on public roads is ineligible — even if it also powers auxiliary equipment from the main tank. Eligibility can exist off public roads (e.g., work sites, yards), or where equipment is powered separately and meets the rules. Draft your policy to avoid implying on-road light-vehicle claims.
“Simplified” approach for small annual claims (<$10,000)
If your annual FTC entitlement is under $10k you can use the simplified methods provided your approach is reasonable, documented and consistent.
Accepted practices to claiming the FTC under the simplified approach include:
- A short, representative sample period (e.g., a fortnight or month) using GPS/odometer/plant logs to set a percentage that is then applied across the year.
- Percentage-based estimates to split eligible vs ineligible litres that mirror your operations (seasonality, job mix).
- Simplified worksheets (NAT 15634) instead of depot-level fuel reconciliations.
Westcourt Tax Tip: “Simplified” is not “lite.” Keep the sample.
Tax Audit Red Flags (the fast movers)
Like anything, the ATO has a range of common mistakes they will look for when reviewing a SME claiming fuel tax credits. These are just some of them we have seen.
- Rates: Using the wrong rate after a Feb/Aug (or 1 July) change.
- Percentages without evidence: A round number (e.g., “30% off-road”) with no sample, logs, or PCG tie-back.
- Auxiliary confusion: Treating light-vehicle auxiliary use on public roads as eligible.
- Copy-paste policies, or AI generated documents that are “tick the box”: If your policy cites the wrong ruling (e.g., mis-labelling FTR 2008/1) or the wrong NAT; it undermines your business credibility.
- Private use: claiming FTC on vehicles that are used privately.
- Double dipping: claiming FTC when fuel is purchased by another company, like a client that is claiming the FTC.
Governance that passes a tax review (family groups & mid-market)
Tax governance is a complicated way of say that your SME has a trail of what you did, when you do it, and how you evidence it was checked. Those documents form the basis for your finance team to do the fuel tax credits claim moving forward.
If your FTC claim is under $10k (simplified):
- A signed one-page policy (who, how, when).
- A sample pack (logs, GPS snapshots, photos of plant, job diaries).
- Worksheet for each BAS and a rate-change check diary note.
If your FTC claim is over $10k (full framework):
- A documented methodology aligned to PCG 2016/8 / PCG 2016/11.
- Quarterly reconciliations and review sign-offs (preparer / reviewer / approver segregation).
- Vehicle & plant register linked to classes and % assumptions.
- Evidence file (contracts, site maps, usage logs, job mix) refreshed annually.
Two Perth-style examples we have seen at Westcourt
- Civil contractor (mid-tier): Depot reconciliation + PCG 2016/8 apportionment + quarterly reviews. Audit closed no adjustment.
- Small food distributor (<$10k): GPS sample set the auxiliary/propulsion split for heavy vehicles; applied via worksheet. Audit closed, no adjustment.
Westcourt FTC Assurance Checklist (use each BAS)
- Are we < or > $10k — and using the right method for that tier?
- Do our policy and workings reference the correct rulings (FTR 2008/1; PCG 2016/8; PCG 2016/11) and the current ATO rate page?
- Have we documented sampling (dates, vehicles, source data) and saved it to the file?
- Have we applied the correct rate set for the BAS period (Feb/Aug and any 1 July RUC change)?
- Are roles segregated (preparer/reviewer/approver) with dated sign-offs?
FAQs
Can I claim both FTC and GST credits on fuel?
Yes. You typically claim GST credits on the purchase and FTCs for the excise component.
How often do FTC rates change?
Usually early Feb and early Aug (indexation) — plus 1 July when the RUC changes for heavy-vehicle on-road use. Don’t assume they are always on the first, as they are not.
What records are "fair & reasonable" for my FTC claim?
This is always difficult and the answer unfortunately depends on circumstance.
You should have enough to replicate your percentage or calculation. That could include sample logs/GPS, plant registers, job mix assumptions, and a worksheet traceable to litres and rates.
Do ≤4.5 t vans ever qualify?
Not on public roads. Eligibility may for separately powered equipment.
Call to Action (Perth)
If you want a two-page FTC policy (with the right citations), a sampling template, and a BAS-period checklist tailored to your fleet and job mix, Westcourt can implement it in a week — and train your team so reviews become routine rather than disruptive.
Read Part 1 for a fundamental understanding of fuel tax credits.