Fuel Schemes Stakeholder Group key messages 4 November 2020

Welcome and introductions

Tony Poulakis welcomed members, noting that this meeting was being held by teleconference due to the impact of COVID-19.

No conflicts of interest raised by any members.

Minutes of the previous meeting of 10 July 2019 had been published on the ATO website and action items had been finalised.

Compliance focus areas

Michael Hughes provided a summary of the Fuel tax credits (FTC) environment noting that in 2019–20, a total of $7.3b in fuel tax credits were claimed via business activity statement (BAS) returns. The registered population of FTC clients was slightly over 250,000. The main industries claiming credits were in mining, transport and agriculture, which had remained steady during the pandemic. Approximately 80% of FTC clients claim less than $10,000 per annum.

Results from 2019–20

As a result of the bushfires in early 2020 and the later impact of COVID-19, FTC clients were able to access ATO support measures including delayed lodgment of BAS returns and suspension of audit activities. Some industries had been impacted less during COVID-19 in relation to fuel use, with mining and agriculture remaining steady. Road transport industry impacts were mixed depending on the industry they serviced. Overall, there had not been a great variation in FTC claims from previous years.

The fuel tax credit tax gap for 2018–19 was published on 19 October 2020 and was a negative gap of $7.1m of $7.2b claimed for that year. Importantly the gap reflected a combination of the claimant population who are conservatively underclaiming in order to not exceed their entitlement, as well as a portion who are overclaiming, with the combination of those giving the net figure. The conclusion was that overall clients are mostly claiming correct entitlements; however, work was still required to reduce both underclaims and overclaims. Members discussed the methodology used and were also referred to the ATO website for further details.

A number of litigation cases had been finalised in 2019–20. Those outcomes had now provided more certainty on key principles of what was considered a public road, what constituted 'use' and when is fuel used 'for travelling'. The decision in one of those cases resulted in the ATO’s position on the treatment of fuel used to power air conditioning in buses being amended from November 2019. There was no outstanding litigation.

The ATO had been working with government agency experts and industry specialists to gain an understanding of GPS-based technologies and how they worked, including their benefits and limitations and how to overcome those limitations. The ATO appreciated the assistance of a number of Fuel Schemes Stakeholder group industry members with this work. A number of large back claims had been reviewed in detail in 2019–20 and the ATO had worked with advisers to establish fair and reasonable parameters. The work highlighted the complexity involved in claims using GPS technology. The ATO was working with members to provide public advice and guidance products to help navigate this uncertainty.

In reviewing the completed reviews and audits for the year it was noted that:

• The majority of errors in claims had been in the transport industry, followed by mining and construction however this reflected the areas that the ATO had focussed during 2019–20 due to the higher use of GPS-based technology to prepare claims.
• Clients in the small business client group had a higher error rate, although larger, more material errors were detected in claims made by clients with large fleets.
• 70% of errors were made by clients, with 24% made by agents/bookkeepers.

Errors found were mainly due to a lack of governance and controls in the claim preparation process, for example miscalculations through clerical error as well as incorrect use of simplified methods; incorrect apportionment when using GPS / telematics, failing to reality test calculations against previous claims or contemporaneous business records to identify data or system errors. Some claims had been incorrectly calculated using a mix of safe harbours and manual calculations.

The Australian Trucking Association had queried compliance with environmental criteria. Only a relatively small number of clients were found to be claiming material amounts for diesel used in vehicles manufactured prior to January 1996. An analysis of 18 cases which had included a review of pre-1996 heavy vehicles found 13 were found to be compliant, one was found to have incorrect records to meet requirements and four did not provide substantiation resulting in FTC claims being disallowed for those vehicles.

Focus areas for 2020–21

The focus areas would be further covered in ATO focus topic. The ATO had been engaging with FSSG members in relation to the development of a simplified claiming method for heavy vehicles – the Basic Heavy vehicle Apportionment Method (BHAM). The BHAM would hopefully represent an opportunity for members to promote the use of a very simple methodology to help smaller claimants calculate the small amounts of fuel used off a public road (and that fuel would be entitled to a higher fuel tax credit). The ATO would be updating FTC-related web content to ensure that smaller claimants could gain an understanding of the simpler method to be used.

ATO focus topic

Strategic shift – Public Advice and Guidance focus – Anthony Barnard

Anthony Barnard advised members that the strategic shift the ATO was working towards was to assist taxpayers to claim the right amount; as simply as possible and with certainty. ATO’s Public Advice and Guidance products included rulings, practical compliance guidelines, safe harbours and ATO web content. These products would be used to assist in this shift. Consultation had taken place with FSSG members on several products.

Anthony noted that the biggest challenge in fuel tax credits was apportionment – how to calculate various scenarios using a fair and reasonable method.

Completed and planned PAG products to achieve this shift included the following: updated web content on issues of concern and tips and traps; a taxpayer alert on GPS / telematics; new guidance for end users of GPS; a new safe harbour for small trucking companies; a new ruling on 'what is a public road'; and the product rulings and class rulings for GPS and telematic products/methodology.

Anthony provided an update on these. The updated web content had been completed; the FSSG had been consulted on the draft Taxpayer Alert which was expected to be published in January 2021; and the FSSG had been consulted about the new safe harbour for BHAM. Based on feedback, there will be further consultation with members and the safe harbour was expected to be published in January 2021. The FSSG would be consulted on a draft of the new guidance for end users of GPS which was also expected to be published in January 2021.

The Tax Determination or ruling for 'what is a public road' was in the early stages of development and was expected to be finalised before June 2021 however, FSSG would be consulted on a draft well before then. Product rulings would be available for those members who did not use simplified methods. A product rulings checklist had been developed to assist applicants and provide guidance about what the ATO considers important to appropriately claim fuel tax credits using GPS technology. FSSG feedback would be sought on this checklist.

The ATO recognised that communication to claimants would play a significant part in the use of these advice and guidance products.

ATO Communications update – Claudia Bianco

Claudia Bianco advised members that a range of communication products were being developed to support the release of advice and guidance products. Generally, the majority would issue on release of the products and would be targeted to relevant audiences.

The BHAM safe harbour would be significant and the ATO was keen to have small claimants use the safe harbour to claim entitlements. Communication activities would be in two phases – initially on release of the final product and another to coincide with the March quarterly BAS. Communications would include updated web content with practical examples, articles in various ATO newsrooms (Tax Professionals, BAS Agents, Small Business), social media including Facebook and LinkedIn, proactive PR activities to key industry and business associations as well as information to the FSSG and other ATO stewardship groups.

Additional communication products such as a pre-recorded webinar or short animated video were being considered as well as a handout that associations could provide to members. Attendees were asked whether there was anything specific that the ATO communications team could tailor to assist their members. FSSG members advised that simplicity in messaging was the main criteria.

Action item

Claudia advised members that as the CPI rate change was scheduled for release on 27 January 2021, the fuel excise indexation rate change would take place on 1 February 2021.

Industry updates - roundtable

Frances Ryan of PwC queried whether there would be further guidance or changes to safe harbours in relation to auxiliary equipment. Anthony Barnard advised that the current ATO view was not expected to change in the near future.

Simon Whyte of EY noted the benefit for claimants of the fuel excise indexation rate occurring on the 1st of the month in February 2021. He noted that a change to the date of effect would simplify claims and assist with compliance. Tony Poulakis advised that the ATO had previously advised Treasury of stakeholder groups’ preference for a change of date of effect to the first of the month and would continue to raise this policy issue.

Richard Calver of NatRoad queried the timeline for the new safe harbour guidance. Due to further consultation, which was now required following feedback, the date of publishing had been extended to January, however every attempt would be made to bring this timeline forward where possible.

Darryl Daisley queried the timing of product rulings. Due to the complexity of analysing specific GPS technologies, the evidence and assurance the ATO requires to sign off that it is producing the correct tax outcome, and the substantial consultation that occurs with the applicant on drafts, these rulings may take up to four months to issue, however this timeline is likely to reduce over time.

Other business

Tony Poulakis reminded members that the ATO would welcome any opportunities to assist in delivering messaging about ATO advice and guidance products to assist claimants. This may include ATO attendance at industry conferences or meetings.

Meeting close

Tony Poulakis thanked members for their assistance and contributions throughout the year.

Attendees

Apologies