Fuel tax credits (FTC) are a cash benefit available to businesses that use fuel in their operations — and they're one of the most consistently under-claimed items on Australian BAS lodgements. For industries like transport, construction, agriculture, and mining, the amounts can be significant. For smaller businesses with plant, equipment, or vehicles, even a modest FTC claim is better than leaving money on the table.
Here's how FTCs work, how to calculate them, and how to book and claim them correctly.
What Fuel Tax Credits Are
The fuel tax credit system allows businesses to claim a credit for the fuel excise or customs duty embedded in the price of fuel used in business activities. The logic is that excise was designed as a road-user charge — so if you're not using fuel on public roads, or you're using it for off-road business purposes, you can recover part or all of the excise.
Eligible fuels include petrol, diesel, liquefied petroleum gas (LPG), liquefied natural gas (LNG), compressed natural gas (CNG), and certain blended fuels. The credit rate varies by:
- Type of fuel
- Activity the fuel is used for (on-road vehicle, off-road machinery, power generation, etc.)
- Vehicle weight (heavy vehicles ≥4.5t GVM have different rates to light vehicles)
Under current ATO rules for the 2025–26 financial year, the rates are indexed twice a year — February and August — in line with the consumer price index. The ATO publishes updated rates on its website at each indexation point.
Who Can Claim
To claim fuel tax credits, a business must be:
- Registered for GST (if annual turnover is below $75,000, you can still register voluntarily)
- Registered for fuel tax credits (separate registration to GST — apply via the ATO)
- Using fuel in an eligible business activity
Common eligible uses:
- Fuel used in heavy vehicles (≥4.5t GVM) travelling on public roads
- Fuel used in light vehicles and plant operating off public roads (on farm, at mine site, on construction site, in a warehouse)
- Fuel used for electricity generation in business premises
- Fuel used in boats for business purposes
- Fuel used in plant and machinery for farming, mining, or construction
Not eligible:
- Fuel used in light vehicles (under 4.5t GVM) on public roads — this is the road-user charge the excise is designed to fund
- Fuel used for private purposes
| Fuel use | Eligible for FTC? |
|---|---|
| Heavy vehicles 4.5t GVM or more on public roads | Yes |
| Light vehicles and plant operating off public roads | Yes |
| Electricity generation in business premises | Yes |
| Boats used for business purposes | Yes |
| Plant and machinery for farming, mining, construction | Yes |
| Light vehicles under 4.5t GVM on public roads | No |
| Fuel used for private purposes | No |
Calculating the Claim
The calculation is: litres of eligible fuel × applicable FTC rate = credit amount.
In practice, most businesses don't measure fuel by exact activity split. The accepted approach is to:
- Identify total fuel purchases (from invoices, fuel cards, bank statements)
- Separate fuel used on public roads (light vehicles) from fuel used off-road or in heavy vehicles
- Apply the correct rate to each category
- Sum the credit amounts across the quarter
For businesses with a mixed fleet (some heavy, some light; some off-road, some on-road), a simple allocation methodology is acceptable as long as it's applied consistently and documented.
The ATO's online FTC calculator can assist with rate lookup, but bookkeepers should maintain their own workpaper showing the calculation for each quarter so it can be reproduced on review.
Recording Fuel Tax Credits in the Accounts
Fuel tax credits are not GST and should not be treated as input tax credits. They are a separate government benefit that reduces the effective cost of fuel.
Two common approaches:
Method 1 — Reduce the fuel expense:
- Dr Fuel Expense (net amount after FTC)
- Cr Accounts Payable (gross fuel cost)
- Cr Fuel Tax Credits Receivable (FTC amount)
This approach shows the true net cost of fuel in the P&L.
Method 2 — Record FTC as other income:
- Record the full fuel cost as an expense
- Cr Other Income — Fuel Tax Credits (when credit is claimed/received)
Method 1 is more accurate from a management accounting perspective. Method 2 is simpler and acceptable for smaller operations.
Whichever method is used, apply it consistently. The FTC amount ultimately ends up as a credit against BAS liability or as a cash refund if the BAS is in refund position.
Claiming on the BAS
Fuel tax credits are reported at Label 7D on the BAS (or the equivalent label in the ATO's online system). The credit reduces the net BAS payable (or increases the refund).
Key BAS points:
- Claim in the quarter in which the fuel was purchased (not when it was used, in most cases)
- Late claims are permitted — you can claim credits for fuel purchased up to 4 years ago, but you must adjust the relevant BAS period
- If FTCs have not been claimed in prior quarters, submit a revised activity statement for those periods (via the ATO's online services) or claim on the current BAS with an explanation
Fuel Tax Credits and the ATO's Focus Areas
The ATO has flagged fuel tax credits as a compliance focus, particularly for:
- Overclaiming on light vehicles — some businesses mistakenly claim on vehicles under 4.5t GVM operating on public roads, which is not eligible
- Using outdated rates — rates change in February and August; using last year's rate in a current-year claim creates errors
- Claiming on fuel used privately — where a business vehicle is also used personally, the FTC must be apportioned
For most practices, a quarterly workpaper — showing the rate used, the fuel volumes, and the split by activity — is sufficient documentation to defend a claim.
Practical Tips
- Set up a fuel card (or require clients to use one) — this makes separating private and business fuel straightforward, and the itemised monthly statement is good audit trail
- Flag rate changes in February and August — set a reminder; using stale rates creates an error that compounds over multiple quarters
- Review the prior-year FTC position when onboarding a new client — missed claims can be recovered, and four years of under-claimed credits can be meaningful
- Don't assume ineligibility — many bookkeepers skip FTCs for small businesses with light vehicles, not realising that if those vehicles operate off-road (in a nursery, at a farm, in a warehouse yard), the off-road component is still claimable
Fuel tax credits are straightforward once the process is in place. The payoff for getting it right — especially for transport, agriculture, and construction clients — is material.