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Fuel tax credits: how much money can you get back?

Whether your contracts are for the inner city, suburbia or regional Australia, keeping a fleet of garbage trucks on the go is a costly exercise. And being a vehicle that takes its toll on the road, these trucks pay their fair share of road tax via the excise on fuel. Yet, these vehicles spend plenty of time off-road – at landfills and MRFs – offloading the contents of their bins.

This means that during the time, they are not aiding in the deterioration of roads so therefore are not subject to the fuel tax. However, figuring out how much tax you should be getting back in the form of a tax credit can be confusing – What constitutes off-road? Does the ATO have a formula? Are there programs that can help you figure it all out? The answers are: depends, not really and yes.

Peter Perich is a director of PPM Tax Group, who specialise in getting monies back for businesses that use truck fleets, and especially like those in the waste sector that spend a fair amount of time off road. How does a business go about getting fuel tax credits and how does the government charge for the tax in the first place?

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“Fuel tax credits are about recovering excise tax on fuel. When you go to the servo at the moment you are paying about 0.43 cents a litre in tax for fuel,” said Perich. “If you are a business using it in certain activities, you can either recover the full amount or a partial amount. It has been given a number of names in the past. If you use that fuel for a business purpose that is not travelling on a public road you can get all your excise back. This covers such industries as mining, farming and construction.

“However, if you are a heavy vehicle about 4.5 tonne GVM – such as garbage trucks – then you have to take out a road user charge that drops you back to 16.9 cents per litre. The road user charge is the government’s way of recovering costs for the additional wear and tear on public roads by heavy vehicles. Historically, what has happening in the past was people would say ‘I have a vehicle that is 4.5 tonne GVM I can claim road transport rate. If I have off-road machinery and equipment I can claim that rate. If I have a light vehicle, I can’t claim it’.

“However, the argument from the ‘Linfox Case’ – which was ultimately successful in the Administrative Appeals Tribunal was that – ‘well, it’s not the whole of the fuel. You can apportion the fuel you have used between activities, including to operate auxiliary equipment on heavy vehicles.”

There are three activities that a truck can exercise its right to get fuel tax credits when not on a public road and therefore do not have to pay the road user charge.

These are:

  • Places where they don’t travel on a public roads.
  • The extent to which they idle in those places – when they are burning fuel and not travelling on a public road.
  • The operation of auxiliary equipment,

The last point is a big one for the waste industry, according to Perich. It is essentially any moving parts on a vehicle that are driven by the main engine, i.e. using the fuel to operate. It is allowable to apportion some of the fuel use towards operating that equipment. This includes anything that is driven by a PTO (Power Take Off unit), which converts the power from the engine into a form that can be used by different types of machinery that is mounted on the vehicle. This would include the bin-lifting mechanism on a garbage truck. It does not matter if the vehicle is on or off a public road when using this equipment.

And what type of monies can be returned to the business? Depends on the size of the business and what they have claimed, said Perich.

“In the past decade I have done about 500 reviews for all sorts of companies around the country – the largest being in the millions in terms of refunds, but usually it can be anything from a couple of grand to hundreds of thousands of dollars. It depends on the business, how they are currently claiming, and what their vehicles are doing,” he said.

Perich uses a system called FTC Manager, which helps calculate the tax credits. One of the key issues when deciding on tax credits is what is off-road and what isn’t. Supported by ATO Product and Class Rulings, the system uses mapping technology, among other things, to make sure claims about the amount of time spent off-road are correct.

The mapping system is two layered. There is the base layer, which is called the centreline geo-tunnel, which is in blue. This is put 30m from the centre line either side of every public road in Australia. Anything within that area is on-road, everything outside that area is off-road. That is the starting point. However, the ATO does acknowledge there is no universally available map sets that are always 100 per cent accurate, said Perich.

“People are drawing new sites; new roads are being constructed and that sort of thing is happening,” he said. “So, we have a second map, or layer, we can override that base line of mapping by drawing specific geofences around certain locations. For example, the first map indicating on-road areas, might encroach over areas that are definitely off road. If you don’t have a geofence that isolates that part of the grid, it will be considered on road. The geofences override that first layer and we can go right up to the edge of the road and maximise the off-road entitlement there. Every metre travelled in that area, or every second idled in that area, will be recorded as off-road travel or idle. It does it automatically, allowing customers to support a higher level of FTC claim.”

Currently, the system has about 35,000 geofences loaded. Every geofence is individually approved by PPM’s team of FTC advisors and once they are approved, they go into FTC Manager’s universal database so all customers can use them.

“If you can think about it conceptually – if I am driving along the highway and I’ve got a GPS unit that pings off the satellite every three or five minutes, you can connect the dots and figure out what it is doing by following the road,” he said. “But, if that vehicle goes off a public road, into private property, and drives around and you’re pinging every five minutes, you’ve got no way of figuring out what it has actually been doing. Our system only works with second-by-second data attained from high-definition telemetry so we do not need to rely on ‘algorithms; to estimate what happens between satellite pings.”

And just to be sure, the manufacturers of the system got a product and class ruling from the ATO.

“The product ruling says that the apportionment methods used by system are fair and reasonable for the purposes of the fuel tax law, and the class ruling says that we can use the raw data as support for making a claim. The product ruling took 10 months of negotiations with the ATO and was approved earlier this year,” said Perich.

Perich acknowledges that some fleets are bigger than others, and that there can be differing amounts saved. However, he has seen a lot of money saved by many companies. He has completed about 310 FTC Manager reviews and has seen an average increase of claim of about $63 per vehicle per month, with some industries such as mining and agriculture tending to have much higher returns.

“Bear in mind the cost of using the system is up to $15 a month, so the net average saving is at least $48 per vehicle,” he said. “There is no one size fits all, especially in the waste industry where you have different vehicles. What I will say about the waste industry is that they tend to have high off-road usage because of the nature of what they are doing. Not a lot of people understand the full extent of what they are entitled to claim. The more supporting data they have to evidence their fuel use during different activities, the more they can potentially recover and get refunds.”