The Australian Government has proposed to change the Energy Grants Credits Scheme (EGCS) to a Fuel Tax Credits System. These changes have recently been passed by both houses of Parliament and have been given Royal Assent.
The changes are intended to provide fuel tax relief for a wider range of businesses and households whilst addressing economic, transport, environmental and social objectives.
Fuel tax credits will provide a credit for fuel tax paid that is included in the price of fuel. It will commence from 1 July 2006, with final changes applying from 1 July 2012. Under the new system Fuel tax credits are to be treated in the same way as input tax credits and claimed through the Business Activity Statement (BAS).
The following points recognize the key changes proposed that are likely to affect you:
- Registration requirements;
- Eligibility requirements;
- Process for claiming credits;
- Transitional arrangements; and
- Record keeping requirements.
As part of the reforms, all businesses need to be registered for GST as well as being registered to claim Fuel Tax Credits before a claim can be made. Any existing business that is registered for the EGCS and currently claiming Fuel Tax Credits will retain their registration.
Some businesses claiming EGCS have a turnover of less than $50,000 and are not required to register for GST. These businesses will not be able to claim fuel tax credit unless they register for GST and commence preparing and lodging a Business Activity Statement.
From 1 July 2006, the following changes will apply:
- There will be no metropolitan boundaries for on-road vehicles – the previous metropolitan boundary restrictions will be removed
- Petrol, as well as Diesel, will become an eligible fuel when used in:
- a vehicle with a GVM greater than 4.5 tonne traveling on a public road (diesel vehicles acquired before 1 July 2006 can equal 4.5 tonne)
- electricity generation (domestic, business or commercial)
- burner and non-fuel use (business).
- Diesel motor vehicles (other than farm vehicles used primarily on an agricultural property in carrying out primary production business) need to meet [one] emission performance criterion (more information below under ‘Emission performance criteria’)
- Organisations that claim more than $3 million per year in fuel tax credits will need to be a member of the Greenhouse Challenge Plus program.
From 1 July 2008, fuel tax credits will be expanded to include the following changes to activities other than road transport:
- Petrol, as well as Diesel, will be eligible for a fuel tax credit when used in previously eligible Energy Grants Credits Scheme activities (for example, agriculture, forestry, fishing, mining and marine and rail transport)
- Petrol and Diesel will be eligible for 50% fuel tax credit when used in activities, machinery or equipment not previously eligible under the Energy Grants Credit Scheme. A full tax credit will apply from 1 July 2012.
If you operate a diesel motor vehicle with a GVM greater than 4.5 tonnes, other than farm vehicles used primarily on an agricultural property in carrying out primary production business, the vehicle will be required to meet one of the following criteria. The vehicle must either:
- be manufactured on or after 1 January 1996;
- be part of an accredited audited maintenance program;
- meet the Australian Transport Council’s in-service emission standard (referred to in the National Environment Protection (Diesel Vehicle Emissions) Measure); or
- comply with an Australian Government-endorsed maintenance schedule.
If you currently claim a fuel grant for alternative fuels such as biodiesel, liquefied petroleum gas (LPG) and compressed natural gas (CNG), you can continue to do so under the existing EGCS claiming arrangements.
However, the amount of the grant will reduce to zero in five equal annual steps commencing 1 July 2006 and concluding 30 June 2010. From 1 July 2011, fuel tax will be levied on alternative fuels and they will then become eligible for fuel tax credit.
The following changes to claiming will apply after 1 July 2006.
- As a business, you will have to claim your fuel tax credits on your activity statement (BAS) in the same way you report your GST credits. You will no longer be able to make claims on an ‘ad-hoc’ basis.
- Your fuel tax credit will be offset against any other tax liability you may have. This change could have a significant impact on the cash flow of businesses who previously relied on receiving cash deposits.
- You will not be able to claim a fuel tax credit using third party arrangements such as eGrant or fishing co-operatives, or by phone using interactive voice recognition (IVR).
- Currently, under the energy grants credits scheme, you claim for eligible litres. As fuel tax credits will be claimed on your activity statement, you will need to report your entitlement in dollars. This will be calculated by multiplying your eligible litres by the relevant fuel tax credit rate.
Fuel tax credit labels will be on the first activity statement you receive after 1 July 2006.
A two year transition measure will be introduced to assist businesses in the move to claiming fuel tax credits through the Business Activity Statement (BAS).
Under the two year transition period, eligible claimants may elect to make a claim for an early payment of fuel tax credit entitlements via a written form sent to the Tax Office. At the end of the tax period claimants will still have to report their fuel tax entitlements for the period on their BAS and reconcile the early payment.
The transitional arrangement will apply to GST registered businesses who currently claim an energy grant under the EGCS.
As with EGCS, you will need to keep fuel tax credits records for five years after making a claim. Further, under the new provisions, the ATO will have the power to recoup amounts paid for fraudulent or miscalculated claims.
Should you wish to know more about the changes or like to discuss your circumstances in more detail, please contact Darren Shone (Taxation Associate) on (02) 4962 2688.
