ATO on high alert for overclaimed fuel tax credits

17 Sep 2021

The ATO this morning released Tax Alert 2021/3 Fuel tax credit overclaims arising from aggressive marketing and use of GPS telematics technology products.

As the Tax Alert applies to both historical and prospective arrangements, organisations which have claimed fuel tax credits using GPS technology should immediately review their position and be proactive in mitigating penalties and interest if errors are identified.

The ATO's concerns with fuel tax credits

The ATO has identified arrangements where the misuse of GPS and telematics technology has resulted in overclaimed fuel tax credits (FTC). Although GPS and telematics technology can be used to support organisations' FTC claims, the ATO is concerned about ways in which the technology may have been used inappropriately to inflate claims.

Tax Alerts are issued when the ATO considers there to be a significant chance that non-compliance by taxpayer in relation to an issue that is likely to be widespread and/or has material tax consequences.

In the alert the ATO provides several examples which are of particular concern, including:

  • roads being wrongly classified as public or private;
  • a small (and overly favourable) sample being applied across an entire business when calculating the claim;
  • inadequate reconciliation of FTC claims with original source documentation, events and fuel usage;
  • lack of regard to or adjustment for known issues with GPS accuracy or poor quality data; and
  • incorrect assumptions being used, such as misstating the rate of fuel consumption.

The ATO is scrutinising claims in which these features may be present. The ATO is likely to initiate reviews or audits in which further information will be required to be provided by claimants to substantiate FTC positions taken. Given the nature of the issues raised in the Tax Alert, we expect the ATO will require a large amount of information to gain comfort in relation to historical claims.

In addition, claimants will also need to be comfortable about their FTC position prior to lodging their annual Reportable Tax Position schedule and as part of any ATO Combined Assurance Review (CAR). Both of these processes involve questioning about whether a taxpayer has any arrangements with features similar to those identified in Tax Alerts.

Next steps for fuel tax credits

Any organisations which have relied on the use of GPS technology should urgently review their position and undertake the prudential steps recommended in the Tax Alert. These include:

  • reviewing internal controls and governance;
  • collating supporting evidence to justify the FTC position taken; and
  • testing the reasonableness of GPS / telematics technology results against contemporaneous business records, and reconciling the two.

It is critical for organisations to be able to demonstrate they have a sound evidential basis for FTC positions taken where GPS and telematics technology has been utilised. Any ATO reviews or audits conducted as a consequence of issues highlighted in Tax Alerts will be rigorous and extensive.

For any errors that are identified prior to the ATO conducting a review, making a voluntary disclosure can assist in mitigating the potential penalty and interest consequences.

Our Tax Disputes team can provide an objective assessment of your organisations' level of tax risk in relation to fuel tax credit claims and help you to manage any necessary proactive engagement with the ATO.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.