The Federal Government has introduced laws into parliament aimed at simplifying the previous complex system of fuel tax concessions. The Fuel Tax Act 2006 and Fuel Tax (Consequential and Transitional Provisions) Act 2006 took effect on 1 July 2006, establishing a system of fuel tax credits to replace the grants provided under the Energy Grants Credits Scheme. All fuels will gradually become eligible for a fuel tax credit, rather than just diesel (and like fuels) as was the case under the previous regime. The new system aims to lower compliance costs, reduce tax on business and remove the fuel tax burden from thousands of businesses (and households).
The new legislation replaces the previous multi-layered system of fuel tax concessions with a single system providing fuel tax credits claimable via the business activity statement (BAS) in a similar way that goods and services tax input credits are claimed. The shift from a grant scheme to a credit system will cause initial administrative issues since businesses will need to align their fuel tax credits with their GST processes.
Under the reform, businesses need to comply with new environmental requirements in order to claim fuel credits. All businesses claiming fuel tax credits will need to comply with some basic emission control standards and big fuel users who received more than $3 million a year in tax credits will have to join the Greenhouse Challenge Plus Program.
On-Road
All on-road use by vehicles over 4.5 tonnes are now eligible for fuel tax credits (including petrol). The metropolitan boundary restrictions that applied to grants have been abolished so that fuel tax credits are available for fuel consumed in business trips by vehicles over 4.5 tonnes in local metropolitan areas. The fuel tax credit available for on-road use is the difference between the fuel tax rate and the road user charge.
Off-Road
All fuels that were eligible for an off-road credit continue to be entitled to claim a fuel tax credit under the new reform. In addition, business will be eligible to claim a full fuel tax credit on off-road use of petrol with effect from 1 July 2008.
Businesses are now entitled to a fuel tax credit with regards to fuel used in commercial and household power generation; fuel consumed in burner applications such as heating; fuel used as a solvent; and fuel used in the manufacturing of products.
From July 2008, all other off-road business use of fuels will become eligible for 50% credit of the fuel tax paid. This will include activities that were previously excluded. From July 2012, there will be credits available for the full amount of the fuel tax paid.
All new claims for diesel (and like fuels such as petrol) must now be made under the Fuel Tax Credit System as they are no longer accepted under the Energy Grants Credits Scheme. Outstanding diesel claims (i.e. claims for purchases made before 1 July 2006) under the Energy Grants Credits Scheme must be made before 1 July 2009.
While existing claimants under the Energy Grants Credits Scheme will be automatically transferred to the new Fuel Tax Credit System, new claimants will need to register for fuel tax credits with the Australian Tax Office (ATO). Claimants will also need to ensure that they are registered for GST.
Alternative fuels such as biodiesel, ethanol and LPG are not eligible for fuel tax credit until 1 July 2011. However, a fuel grant under the Energy Grants Credits System may be available.
Fuel tax credits will now be claimed via the Business Activity Statement (BAS) in line with existing GST accounting arrangements and will be offset against the business entity’s other tax liabilities, including GST, PAYG etc. The fuel tax credits can only be claimed in accordance with the cycle in which the business lodges its BAS with the ATO, which may be monthly, quarterly or yearly.
Special claiming arrangements are available to certain businesses to assist with the move to fuel tax credits. These arrangements allow eligible claimants (including GST registered businesses that were existing claimants under the Energy Grant Credit System) to make a claim to the ATO for early payments of fuel tax credits. The claimant must notify the ATO by 31 December 2006 of its intention to receive early payments. If early payments are received, claimants must still report their fuel tax entitlements for the period on their BAS and reconcile the early payments.
How must your current fuel claiming practices change to comply with the new regime?
What additional cost savings may be available to you under the new regime?
Are you currently a part of the Government’s Greenhouse Challenge Plus Program?
For further information, please contact Elizabeth Guerra-Stolfa on (03) 9608 2144 or e.guerra@cornwalls.com.au
