Coming into effect from 1 October 2020, the Commissioner of Taxation is allowing a simplified method for some claimants of fuel tax credits (FTC) on heavy vehicles.
This change is one of a few options now available for businesses looking to claim fuel tax credits without needing to keep excessive records. Previously, simplified methods have been made available for businesses who claim less than $10,000 in fuel tax credits per year. These include:
using one FTC rate for the entire BAS period
a basic method for calculating litres in a tax period
simplified record keeping, such as using bank statements (PCG 2016/2), and
using an ATO percentage to determine the litres used in auxiliary equipment (PCG 2016/11).
Basic method for heavy vehicles
The new basic method is only available for heavy vehicles that use diesel. Also, the vehicle must otherwise be eligible to claim fuel tax credits (iknow.cch.com.au/topic/tlp1001/overview/fuel-tax-credits).
Essentially, the ATO has provided a schedule of accepted diesel consumption rates in PCG 2021/2. The diesel consumption rate is mainly used to calculate an acceptable amount of diesel used based on kilometres driven.
To use the simplified method, an entity is required to substantiate the amount of litres acquired. This can be determined from fuel card statements or other acceptable methods.
Once all the information is available, the simplified method calculates an acceptable split between “public road usage” and “all other business uses”.
Steps in using basic method
Calculate the litres of diesel used on public roads
Kilometres travelled on public roads × Diesel consumption rate
To calculate the kilometres travelled on public roads, the entity can calculate the actual number of kilometres or use a calculation provided by the ATO. The ATO calculation, known as the “derived number”, is the:
- total number of kilometres travelled × 98.4%.
Using the ATO calculation for derived kilometres, your client will only need to keep logbooks or odometer readings. Calculating based on actual public road usage requires detailed record keeping (such as GPS, other software, start and end destinations, times on road, etc).
As mentioned above, the diesel consumption rate is available at Schedule 1 of PCG 2021/2, and is calculated based on the gross vehicle mass of the truck.
Calculate litres of diesel used off public roads
Total litres of diesel used — Litres of diesel used on public roads (from step 1)
The total litres of diesel used is generally available from tax invoices, receipts, fuel card statements, fuel supplier statements, bank statements, etc.
Calculate the fuel tax credit for the tax period
The fuel tax credit is the addition of the following 2 calculations:
Litres of diesel used on public roads (step 1) × on public road rate, plus
Litres of diesel used off public roads (step 2) × all other business uses rate.
The current tax rates for FTC are here.
Client opportunities
If your client uses this basic method for heavy vehicles for a quarterly lodgment, they can only use this method. That is, an entity cannot claim the basic method as well as the auxiliary equipment method.
It may be beneficial to calculate which method your client should use each tax lodgment. A calculator has been prepared to assist you in making these calculations efficiently for clients.
