5 Fuel Tax Credit Mistakes That Could Cost Your Business
Fuel tax credits can be a valuable way for Australian businesses to reduce costs, but the process of claiming fuel tax credits is often confusing. Many business owners find themselves unsure about eligibility, the correct fuel tax credit rates, and how to accurately complete their Business Activity Statement (BAS). Even small mistakes can lead to missed tax credits for fuel, overpayments, or issues with the Australian Taxation Office (ATO). In this article, we’ll highlight five common fuel tax credit mistakes and show you how to avoid them, so your business can claim what it’s entitled to and stay compliant.
We’ll cover the most frequent errors we see, from using the wrong fuel tax credit rates to miscalculating claims for light vehicles and heavy vehicles. You’ll also learn how to keep your records in order, understand which fuels and business activities are eligible, and make sure your fuel tax credits claim is accurate every tax period. By the end, you’ll have practical tips to help your business get the most from the fuel tax credit system.
Outdated Fuel Tax Credit Rates Can Lead to Costly Errors
Staying up to date with fuel tax credit rates is essential for any business that wants to claim fuel tax credits correctly. The ATO updates these rates twice a year, usually in February and August, to reflect changes in the Consumer Price Index. If you use an old rate when you calculate your claim, you could end up under-claiming or over-claiming, which can affect your business activity statement BAS and may trigger an ATO review.
For example, if you use diesel in heavy vehicles on public roads, the rate changed to 20.3 cents per litre in February 2025. If you’re still using the previous rate from July 2024, your claim will be off. The same applies to other taxable fuel types, such as liquefied natural gas and compressed natural gas. The ATO’s fuel tax credit calculator and simplified fuel tax credits methods can help you check the current rates for each tax period.
Remember, the price of fuel includes excise or customs duty, which is why you’re eligible for a tax credit. Always check the latest rates before you submit your BAS to make sure your claim matches the fuel tax excise or customs duty paid. To avoid common mistakes when lodging your BAS, read our article on Avoiding BAS Lodgement Errors
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Claiming Credits for Ineligible Fuels or Business Activities
Not every type of fuel or business use is eligible for a fuel tax credit. One common mistake is claiming credits for fuel that hasn’t had excise or customs duty paid, such as diesel exhaust fluids or certain liquid fuels. Another is claiming for light vehicles (under 4.5 tonnes gross vehicle mass) when they’re used on public roads, which isn’t allowed under the current rules.
The ATO’s eligibility tool can help you work out which fuels and business activities qualify. For example, fuel used in auxiliary equipment (like refrigeration units on diesel vehicles) may be eligible for a higher rate if it’s drawn from a separate fuel tank and used off public roads or for private purposes. However, if you use the same fuel for both on road and off-road activities, you’ll need to apportion your claim.
It’s also important to note that assessable government industry payments and certain business activities may affect your eligibility. Always double-check before you claim, especially if you use a mix of fuels like liquefied natural gas or compressed natural gas.
Calculating Credits Based on Cost Instead of Quantity
A frequent error is working out your fuel tax credits claim based on the price of fuel used, rather than the number of litres. The correct way to calculate your tax credit is to multiply the eligible litres by the current fuel tax credit rate for that tax period.
For example, if you buy 1,000 litres of diesel for your business use, you multiply 1,000 by the applicable rate (e.g., 20.3 cents per litre), not by the total price paid.
This is especially important when fuel prices fluctuate. The excise or customs duty is included in the price, but your claim is based on the quantity, not the cost. Make sure your records show the number of litres purchased, not just the dollar amount. Using the basic method or the ATO’s fuel tax credit calculator can help you avoid this mistake.
Not Apportioning Fuel Use Correctly Between Activities
Many businesses use fuel for a mix of eligible and ineligible activities. For example, a heavy vehicle might use diesel for both on road travel and to power auxiliary equipment. The fuel tax credit rate for on road use (public roads) is different from the rate for off-road or private roads. If you don’t apportion your fuel use correctly, your claim could be inaccurate.
To get this right, keep clear records of how much fuel is used for each activity. This might mean using logbooks, telematics, or other tracking methods. If you use a separate fuel tank for auxiliary equipment, make sure you claim at the correct rate. The ATO expects you to be able to show how you worked out your claim, especially if you’re using the simplified fuel tax credits method.
Overlooking Adjustments for Previous BAS or Past Errors
If you discover a mistake in a previous BAS, you can usually correct it within four years. Many businesses miss out on this opportunity, either by not reviewing past claims or by not understanding the difference between an adjustment (changing the intended use of fuel) and an error (such as claiming for ineligible fuel or business activities).
For example, if you claimed the higher rate for fuel used in auxiliary equipment but later used that fuel for on road travel, you’ll need to adjust your claim and repay the difference. The ATO provides forms and guidance for making these adjustments, and the fuel tax credit calculator can help you recalculate for previous tax periods.
To avoid confusion or penalties when reporting your business taxes, read our article on Monthly vs. Quarterly BAS Reporting to help you choose the right cycle for your business
Make the Most of Your Fuel Tax Credits
Fuel tax credits are a valuable way to reduce costs and improve cash flow for your business. By understanding the rules, keeping good records, and using the right fuel tax credit rates, you can make sure your claim is accurate every tax period. Whether you use diesel, liquefied natural gas, or compressed natural gas, and whether your vehicles are light vehicles or heavy vehicles, getting your claim right means more money back for your business.
If you’re unsure about your eligibility, how to apportion fuel use, or how to correct a previous BAS, our team at ACT Tax Group is here to help. We specialise in helping businesses like yours claim fuel tax credits with confidence, so you can focus on what you do best.