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Pricing strategies and how to set the best price

Pricing strategies and how to set the best price

What's the best way to establish a price for your products or services?

Getting your pricing right is crucial. Put your prices too high and your customers may desert you; put them too low and you'll generate sales but won't have a large enough profit margin to create healthy revenues and cashflow for the business.

Whether you're a new startup, or an established business, choosing the right pricing strategy is a fundamental part of designing your business model. As such, pricing is something that's likely to take considerable thought, research, planning and analysis over the lifetime of your products.

So, how do you know what to charge for each product and/or service? And how do you decide a price point that's both competitive AND profitable for the business?

Costs, margins and hitting the right price point

For your business to be viable, you have to know for certain that you can:

  • Find and win customers
  • Meet your project sales and revenue targets
  • Cover your running costs, overheads and operating cashflow
  • Generate profits and get a return on your investment.

But how does this all come together to define your final sale price? The answer is to have a granular understanding of your costs, your margins and your pricing – and also to know who you're selling your product/service to.

Let's look at the different ways that a price can be worked out:

  • Cost price – when you make a product, or deliver a service, you need to spend money to do that. This expenditure includes the raw materials, the business overheads and the labour costs of creating your product/service. By adding up all these expenses and dividing them by the number of units you delivered, you get your cost price. In other words, it's the total cost of the unit before any margin or profit is added.
  • Wholesale price – your margin is the amount you add on to your cost price to make a profit. So, if my cost price per unit is 5, I might sell each unit to a wholesaler at 7.50. By doing this, I recover the cost of making the unit (or 'Cost of Goods Sold' in accounting terms), and I make a profit of 2.50 on each unit I sell to my wholesale client. This is the wholesale price – as the wholesaler will then add on their own margin in order to sell it to a consumer at, for the sake of argument, 10. You make 2.50 and the wholesaler makes 2.50.
  • Retail price – this is the price when you sell the product to a consumer, having factored in margins and comparing prices within the market to ensure you're competitive but still turning a good profit. So, if you sell direct to a consumer, at a price of 10, and your cost price is 5, then you'll make 5 profit for every unit you sell. This contrasts with 2.50 profit per unit if you sell to a wholesaler, although you're likely to sell in bulk in this scenario and will make your profits through this economy of scale.
  • Premium or economy pricing – knowing how to position your product/service in the market is important. Are you selling a premium product, with a high price tag? Or are you selling an economy product, with a low price point? There's a big difference between selling a limited number of units at a high price (and high profit), and selling a big number of units at a cheap price (low profit but larger sales). Positioning your prices between these two polar ends of the pricing spectrum isn't easy, and will take time, experience and plenty of experimentation to get right.
  • Knowing when to discount or increase your prices – your price isn't a static thing. Costs of production will increase, markets will change and sales campaigns will require discounted prices. So it's vital to continually assess, review and update your prices. For example, you could run a discount to increase sales, decreasing your margin and selling more units. Or you could choose to put your price up to increase your margin and make things more profitable. What's important here is to know how price-sensitive your customers are, how loyal they are to the brand, and what they're willing to pay for your specific products/services.

Talk to us about setting your pricing strategy

Pricing is a complex and difficult area to get right, so working on your pricing is something that should be done on a regular basis.

If you'd like to review your current pricing strategy, please do come and talk to us. We will analyse your current strategy, review your prices and margins, and suggest the best way to improve your price point, revenues and profitability.


Leadership lessons: JUST FOR ME

Leadership Lessons: JUST FOR ME

There are thousands of books written about leadership. We've distilled some lessons from some of them into the acronym JUST FOR ME - nine things within your control to help you become a more effective leader.

1. Just do it.
So often we get in our own way of implementing our ideas. Stop limiting the business's potential and prioritise your time to ensure the important things get done.

2. United vision and values.
Your vision is where you want the business to be in the future; your values are the compass that drive your behaviour to get there. Clarify and articulate these ASAP.

3. Safety.
It's a leader's job to ensure physical and emotional safety for their team at work. This goes beyond legal obligations; the safer employees feel at work, the more productive, innovative and loyal they'll be.

4. Teamwork and Trust.
Form a team of people who are smarter than you in different ways, using your collective expertise to achieve results impossible to achieve alone. Build a culture of trust so your team know they can rely on you and that the feeling is mutual.

5. Focus.
Bring focus to each team member's individual contribution towards achieving the business goals and vision. Provide clear key performance indicators to ensure everyone knows what to focus on.

6. Opportunity.
Look for the opportunity in every mistake, challenge and difficult situation. These are key sources of learning.

7. Resilience and Resourcefulness.
Resilience helps you recover quickly from difficult situations; resourcefulness helps you find quick and clever ways to overcome difficulties. Build resilience and resourcefulness in your team and yourself.

8. Mindset.
This is the attitude you bring to your role as leader. Do you have an abundance mindset or scarcity mindset? Do you take ownership, accountability and responsibility for your actions? Your mindset has a huge impact on how you and your team feel about coming to work each day.

9. Empathy and Energy.
Empathy is the ability to see things from another's perspective. For example, instead of disciplining a team member for struggling, first seek to understand why they're struggling, then offer support and training. Increased empathy increases energy across the team and the business and improves results.

Take these nine factors and make a plan for how you can develop your leadership skills. Which one will you focus on first? If you need help implementing strategies to become a better leader, get in touch.

"Success is neither magical nor mysterious. Success is the natural consequence of consistently applying fundamentals." - Jim Rohn


Tracking your marketing results - why it's important

When your company is spending money on marketing activity, you want to get a good return on this investment. But, more often than not, businesses spend too little time actually analysing and scrutinising the performance of their marketing campaigns and channels.

Once you've invested in an expensive promotional campaign, you'll want to know that the money is well spent. So, setting aside some time to analyse your results and establish your return on investment is not just a 'nice to have' – it's an essential part of the marketing process.

Measuring success in your marketing

Knowing your return on investment (ROI) is vital if you want to make sure your marketing is truly delivering on its promise. It's only by analysing the performance of each marketing campaign or customer event that you can get a realistic idea of whether it was a success, or a flop.

The key problem with measuring your marketing return is that the impact of good marketing goes way beyond the purely financial impact. But, as we'll see, to gauge any specific impact on your profitability, you're going to need to start with the financial basics.

Let's look at key ways to analyse the impact of your marketing:

  • Financial return – one way to look at your ROI is sales income minus your investment (the cost of sales and marketing). Use your accounting platform to get an idea of the income (return) generated from sales of the product/service you're marketing. Then use this number to work out your marketing return with the following formula: ((Return - Investment) / Investment) x 100. For example, if you made 8k from sales of your new product, but spent 2k on marketing the product, this would work out as follows:

    ((8,000 - 2,000) / 2,000) = 300% ROI.

  • Engagement and conversion return – knowing your financial ROI is vital, but it's also important to measure the effectiveness of your marketing. In the age of digital and online marketing, this has never been easier to do. Using web analytics tools, like Google Analytics, you can measure areas such as engagement (people viewing or clicking through to your content) and conversion (people following your marketing calls-to-action). High engagement and conversion scores mean your digital marketing is being seen by the right people, and is delivering a return on your digital investment.

  • Lead generation return – if your marketing is doing its job, you should see an increase in lead generation and new enquiries. Tracking and nurturing new leads and enquiries through your client relationship management (CRM) platform allows you to follow the progress of these leads. Once set up in the right way, you also see where there's a direct correlation between your marketing and the conversion of leads into sales (and, by extension, into more revenue for the business).

  • Brand reputation return – your brand is an integral part of your marketing as a business. One desired outcome of your marketing should be to raise awareness of your brand in the marketplace, and to reinforce your brand reputation with customers. Measuring the changes in brand awareness pre and post-marketing helps you to see where your investment is having an impact. Using customer feedback and trust apps, like TrustPilot, will allow you to measure how satisfied your customers are with your service levels, products and the promises you've made in your marketing.

No marketing strategy should ever stand still. It's important to review your activity, look at the performance, measure your ROI and see where you can do better.

Find out which channels are delivering the best return, which target audiences are responding well to your campaigns, and which content is knocking it out of the park. Armed with this knowledge, you can refine, rethink and improve your marketing – ensuring that you improve your overall ROI over time.


Building an e-commerce site for your business

Building an e-commerce site for your business

If you're selling directly from your website, yours is an e-commerce site. And, it needs to do more than a normal website.

Think about the following 6 elements:

1. Use advanced features

Think about your audience and consider what features would make buying from your site easier and more pleasant. These could be the ability to buy gifts for others, track delivery, or check order history. If your visitors come from around the world, you can offer to show them prices in their local currency, or only the products that will ship to their destination.

2. Follow a no-surprises policy

Tell people about any extra charges, delivery fees and the returns policy upfront. The more information you can provide, the better the experience for your customer. And happier customers means fewer support tickets you'll have to process.

3. Focus on great imagery

Images must replace the in-store experience where shoppers can see and touch products. So, photography that makes products look good, while also giving as much detail as possible, will help reassure consumers that they're making the right choice.

4. Make payment processing easy

You'd be surprised at how easily you can lose a sale if paying feels too hard, or takes too long. Make sure your payment process is easy with clear steps until the sale is confirmed.

5. Make sure it is secure

People are trusting you with valuable information such as their payment details and contact information. You need to keep that information safe. To protect the confidentiality and integrity of their data use HTTPS (hypertext transfer protocol secure). The 'S' is important as it makes sure that the communications between a user's browser and your website are encrypted. Google are now indicates connection security with 'secure' in the address bar so make sure your site is up to date.

6. Support

Remember your e-commerce site replaces the in-store experience - help sections with things like FAQS, support desks and live chats can go a long way to replicating the role of the retail assistant. The goal is to make the process feel as easy as possible for your customers - and to be there with help if anything goes wrong.

Cutting costs or increasing your prices? We can help.

With more than 85% of SMEs expecting a lower profit in the next nine months, the more prepared you can be for the unexpected, the better. Managing expenses is a good idea at any stage in your business and you may need to consider increasing your prices.

Smart ways to get your costs under control

Cashflow has been a big issue for thousands of businesses this year, and when the money's not rolling in, it can help to rethink your costs. To do it effectively involves more than just keeping an eye on outgoings. It's about looking at all the moving parts of your business to see if your systems (or lack of) are costing you unnecessarily. Here's how:

  • Muck in - Do a cost control audit to work out where your big cost centres are and look at your systems for managing them.
  • Be aware - Don't just slash your expenses. Track costs and look out for opportunities to trim fat or take a different approach.
  • Unite your team - Bring everyone together to monitor and analyse inputs and expenses. Reviewing and developing your systems? Get your team's feedback.
  • Look to your peers - How do your costs compare to others? If a business of a similar size and production system to you is performing well, but spending less, explore what they're doing differently.
  • Seek advice - Got a good idea of where the issues are, or feeling totally confused? Talk to your advisors about your next steps

How can I put my prices up without losing customers?

If you need to change your pricing to make ends meet, be honest and up-front with your customers at all communication points.

  • Make it clear on your website and social media that prices have changed and why.
  • Send an email to let all your clients and suppliers know about the changes.
  • Meeting people face-to-face? Make sure they're aware of the price hikes before they're invoiced - otherwise you could be in breach of the Fair Trading Act.
  • Provide the best customer experience you can by updating staff on any changes and advising them on how to communicate them to customers.
  • Worried you'll lose fans? Consider staggering price increases of individual products over time.

Digital marketing on a shoestring budget

Digital marketing on a shoestring budget

Promoting your goods and services to potential customers is at the heart of running any successful business. And to advertise your brand in the modern world means diving into the world of digital marketing – i.e. online promotion activity for your business.

87% of consumers begin their search for a product online, according to recent research. So having an 'online presence' is critical if you're going to engage with prospective customers, create sales leads and generate enquiries for your team to follow up. That means investing in the right tools, training and marketing expertise, so you can start interacting with customers in the digital space – a move that can start to get expensive!

But what if money is tight at present, and staff resources are low? How can you create successful digital marketing on a shoestring budget?

Economical ways to drive your digital marketing

Digital marketing doesn't have to be complicated. Yes, large businesses do spend millions on targeted digital campaigns, search engine optimisation (SEO) and above-the-line advertising. But you can also achieve great results without the big budgets.

Ultimately, simple digital marketing requires three very basic things:

  1. A company website – whether it's a full-blown WordPress website, or a basic Facebook Business page, you need an online hub to act as your company's shop window.
  2. Good SEO – if people are going to find your new product page, or read your company blog, you need good SEO to ensure you feature in the top search results.
  3. A social media presence – people buy from people, and your company social media accounts are an amazing way to interact with prospects and generate followers.

For many small businesses, this is all you need to kickstart your digital marketing and to start tentatively reaching out into the online market. But with a little work and smart planning, you can expand on your digital activity without running up a huge marketing bill.

Here are some economical ways to improve the return on your digital marketing:

  • Review and improve your website – is your site easy to navigate? Does it provide visitors with the information they need? Is it clear what you want people to do on each page? This 'call-to-action' must be clear so people click through to your contact page, blog, shopping cart, or appointment booking page. The more effective you make your site, the greater the chances are that it will generate leads, followers and paying customers.
  • Think about SEO and keywords – it's vital that you use keywords and search terms in your online content that match what your customers are searching for. If you're selling premium running shoes, for example, the keyword 'running shoes' should appear in your blog titles, your page metadata (the text embedded in the page that you don't see) and in the body text of your landing pages and home page etc.
  • Claim your Google listing – let's be honest, most of us use Google as our search engine of choice. So, if you're going to capitalise on this, you need to own your Google listing so prospective customers can find you and know the important details about the business. Make sure your opening hours and contact details are correct, turn on reviews and encourage happy customers to post one – nothing beats good feedback!
  • Feature in relevant directories and groups – Are there other consumer, trade or sector-specific directories you should be on? Often this is just a matter of making sure you've sent in the right information, so look for the most relevant directories and make sure you're listed, with all the correct contact information and online links.
  • Get proactive with your social media – if your customers are on social media then make sure you're on social platforms too. Sites like Twitter, Facebook, LinkedIn and Instagram are all free to set up and give you a platform for interacting with followers, sharing content and company news and generating interest in your brand and products/services.
  • Post great content and advice – content marketing can be extremely powerful – and won't cost you a fortune. Publishing blogs, newsletters, news articles and helpful advice through your website helps to position your brand in the market and generate interest. You don't have to publish something every week, but do try to keep content regular, useful and engaging. Think about creating short guides that relate to the product or service you offer. If people find it valuable, it will do wonders for your ranking on Google!
  • Start making smart use of video - Video can be an amazing way to communicate with your audience, and all you need to get started is your smartphone. Most modern phones are capable of recording high-quality video and audio, so there's nothing to stop you posting your own vlogs or creating a YouTube channel to share video tutorials, opinion pieces or product overviews. You could even try doing a Facebook live event and broadcasting live to your customer base to add something new and interesting to your marketing mix and campaign content.

Christmas Parties and Presents - and Tax!

Christmas Parties and Presents - and Tax!

Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts. But don't get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).

Is it Entertainment?

Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved then it will generally be called entertainment.

Fringe benefits tax may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST.

A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.

Keep it Free From FBT

  • If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
  • Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
  • Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
  • Avoid giving 'entertainment' gifts over $300, such as membership to clubs, tickets to events or travel.
  • Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.

Enjoy the Party

Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses. Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party!

Home to work travel claims? Generally not, but sometimes...

As a general rule, travel from your home to your workplace is not allowed as a deduction because it constitutes a "private expense". There are however specific situations where this rule may not apply, and there can be circumstances where you may be entitled to claim some of the travel expenses between your home and your regular workplace, or even your alternative workplace.

But it is a minefield that needs to be treaded carefully so as to not end up in hot water with the taxman.

What constitutes a deductible 'travel expense'?
Individuals are typically able to claim a tax deduction for work-related travel expenses. You can generally claim the cost of travelling:

  • directly between two separate workplaces – for example, when you have a second job (providing one of the places isn't your home)
  • from your normal workplace to an alternative workplace (for example, a client's premises) while still on duty, and back to your normal workplace or directly home
  • if your home was a base of employment – you were required to start your work at home and travelled to a workplace to continue your work for the same employer
  • if you had shifting places of employment – you regularly work at more than one site each day before returning home
  • from your home to an alternative workplace for work purposes, and then to your normal workplace or directly home. This does not apply where the alternative workplace has become a regular workplace
  • if you need to carry bulky tools or equipment that you used for work and can't leave it at your workplace – like an extension ladder if you're a tradesperson or a cello if you're a musician.

What you can't claim
You can't claim the cost of driving your car between work and home just because:

  • you do minor work-related tasks – for example, picking up the mail on the way to work or home
  • you have to drive between your home and your workplace more than once a day
  • you are on call – for example, you are on stand-by duty and your employer contacts you at home to come into work
  • there is no public transport near where you work
  • you work outside normal business hours – for example, shift work or overtime
  • your home was a place where you ran your own business and you travelled directly to a place of work where you worked for somebody else
  • you do some work at home.

When can you count your home as a workplace?
You cannot count your home as a workplace unless you carry out "itinerant work"; that is, work that requires you to travel from place to place. If you do itinerant work or have shifting places of work, you can claim the cost of driving between workplaces and your home. The following factors may indicate that you do itinerant work:

  • travel is a fundamental part of your work, as the very nature of your work, not just because it is convenient to your or your employer
  • you have a "network" of workplaces you travel to, throughout the day
  • you continually travel from one work site to another
  • your home is your base of operations – you start work at home and cannot complete it until you attend at your work site
  • you are often uncertain of the location of your work site
  • your employer provides an allowance in recognition of your need to travel continually between different work sites and you use this allowance to pay for your travel.

Common examples of such workers would generally include tradespeople and shearers whose homes are the base of their operations from which they travel to one of a number of locations throughout the day over a continuing period.

Typically in these cases, the employee will show up at the employer's office periodically (like once a week) to complete or file reports, pick up supplies or organise future trips. Travel from home to the office and back made in these limited circumstances will be treated as business travel, and is as a result are tax deductible.

Below are three examples below adapted from the ATO to elucidate what can and cannot be claimed when it comes to home to work travel.

Example 1: Travel between jobs
Anna is a clerk at a large departmental store. She drives her car from her normal workplace to her second job as a waiter. After finishing work as a waiter, she goes directly home.
Yes, Anna can claim the car expenses from her normal workplace to her second job. However, she can't claim the cost of travelling home from her second job.

Example 2: Travel to an alternative workplace
Jana, a dental assistant in the city, is required to attend meetings at her employer's other clinic in the suburbs. She drives her car to the suburban clinic. As the meetings finish late, she drives straight home.
Yes, Jana can claim the cost of each journey.

Example 3: Work from home
Benjamin's employer has an office in the city but is happy for him to work from home three days a week. On these days, Benjamin sometimes has to drive into the office for a meeting before returning home to work.
No, Benjamin cannot claim the expense incurred in driving between his home and work as it is a private expense.

Above are only straightforward examples though. There will be cases where, while the nature of the office or employment is not inherently itinerant, claiming a deduction is less clear. Also remember that there are special rules for claiming expenses incurred while travelling overnight on business.


If you have any questions in relation to business travel or other business matters, please don't hesitate to contact our office.

DISCLAIMER: All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication will be liable in any way for any loss or damage suffered by any person through the use of or access to this information.

Tax and Christmas Party Planning

Tax & Christmas Party Planning

It's not quite Christmas time yet, but most businesses will be in the process of thinking ahead to the yuletide festivities, if not already into well-advanced planning. One of the perennial questions is if and how fringe benefits tax applies to these activities and can I claim a tax deduction.

While such social functions may result in Fringe Benefits Tax (FBT), income tax and GST outcomes, these are covered under the existing relevant legislation. The provision of "entertainment" at Christmas therefore mirrors the tax treatment such benefits will receive at other times of the year.

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT - that is, exempt minor benefits and exempt property benefits (more below) - cannot be claimed as an income tax deduction. Note that the costs of entertaining clients are not subject to FBT and are not income tax deductible.

There is what is known as a property benefit exemption where the costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefit exemption is only available for employees, not associates.

There is also the minor benefits exemption. Broadly, a minor benefit is one where it:

·         has a notional taxable value of less than $300 (inclusive of GST)

·         is provided on an "infrequent" or "irregular" basis, and

·         is not a reward for services.

Note that other benefits (such as gifts) provided at a Christmas party may be considered as separate minor benefits in addition to meals provided (referred to as an "associated benefit").  In such cases, the $300 threshold generally applies separately to each benefit provided.

Entertainment benefits

Say for example a company holds a Christmas lunch on its business premises on a working day. Employees, their partners and clients attend. Food and drink is provided at the party and the company provides taxi travel home from the party. The cost per head is $125.

Providing a party for employees, associates and clients is entertainment, because the purpose of the function is for people attending to enjoy themselves. There can be exemptions for this, but these may vary according to the recipient.

Employees: Does an exemption apply?

  • Food and drink: The food or drink provided to employees is exempt from FBT because it is provided and consumed on a working day on the business premises.
  • Taxi travel: The taxi travel is exempt from FBT because there is a specific FBT exemption for taxi travel provided to an employee directly to or from the workplace.

Associates/clients: Does an exemption apply?

  • Food, drink and taxi travel: The food, drink and taxi travel provided to the employees' partners (associates) is exempt from FBT because of the minor benefits exemption.
  • Clients food drink and taxi travel: There is no FBT on benefits provided to clients

Note that the employer could not claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates or clients.

For taxi travel to or from a Christmas function, employers should be mindful that:

  • where the employer pays for an employee's taxi travel home from the Christmas party and the party is held on the business premises, no FBT will apply. 
  • where the party is held off premises and the employer pays for a taxi to the venue and then also pays for the employee to take a taxi home, only the first trip will be FBT exempt. The second trip may be exempt under the minor benefits exemption if the employer has adopted to value its meal entertainment on an actual basis.
  • the exemption does not apply to taxi travel provided to "associates" of employees (for example family members).

If other forms of transportation are provided to or from the venue, such as bus travel, then such costs will form part of the total entertainment expenditure and be subject to FBT.  A minor benefit exemption for this benefit may be available if the threshold is not breached.

What's under the tree?

Gifts provided to employees or their associates will typically constitute a property fringe benefit and therefore are subject to FBT unless the minor benefit exemption applies. Gifts, and indeed all benefits associated with the Christmas function, should be considered separately to the Christmas party in light of the minor benefits exemption.

For example, the cost of gifts such as bottles of wine and hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits. Gifts provided to clients are outside of the FBT rules (but may be deductible, see below - also note that deductibility may still apply even if the gift is a "minor benefit").

The income tax deductibility and entitlement to input tax credits (ITC) for the cost of the gifts depends on whether they are considered to be "entertainment".  For example, an unopened bottle of spirits is deemed to be a property benefit (the entertainment starts after the cap is unscrewed). Again, in most cases the entitlement to an ITC for expenses incurred for the employer mirrors the income tax implications - so an ITC is only available to the extent that the expense incurred is deductible.

Regarding a business providing a gift to a client, even a former client, the ATO confirms that such outgoings are generally deductible as they are being made for the purposes of producing future assessable income. However, the outgoing is not deductible where some other provision of the income tax law prevents it from being deductible.


If you have any questions in relation to Christmas Parties, FBT or other business matters, please don't hesitate to contact our office.

DISCLAIMER: All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication will be liable in any way for any loss or damage suffered by any person through the use of or access to this information.

Fuel tax credit rates are updated every year (generally in February & August). It is therefore timely that the ATO has made public some common errors that taxpayers make when calculating and claiming fuel tax credits.

The tips that follow will help taxpayers avoid these errors, or you can watch this webinar recording for more information on getting fuel tax credit claims right.

Make sure the fuel is eligible

The ATO says a common mistake is to claim for fuel tax credits for fuel used for private purposes, or for traveling on a public road in vehicles with a gross vehicle mass (GVM) of 4.5 tonnes or less.

There are exceptions to what can be claimed, and so there is an eligibility tool that may prove handy.

Ensure the right rate is used

As mentioned above, fuel tax credit rates can change, so it's important to make sure the right rate is in fact being used. You can check the rates on the ATO website before lodging a BAS, or go to the ATO's fuel tax credit calculator.

Claims for less than $10,000 in a year, a taxpayer can use the rate that applies at the end of a BAS period for the whole of that period. This is known as the simplified method for fuel tax credit claims.

Is the "activity" relevant?

The ATO points out that rates can differ depending on the activity the fuel was used for. A common error is to claim credits using the "other business uses" rate for heavy vehicles travelling on public roads.

The best way to clear this up, according to the ATO, is to use its calculator (link above), but also to refer to its guidance on apportioning use in heavy vehicles to power auxiliary equipment.

Checking calculations

A common mistake is to use the cost of fuel when calculating fuel tax credits, instead of the quantity of fuel multiplied by the relevant rate.

Fuel tax credits can be worked out using the following formula:

Quantity of eligible fuel x Correct fuel tax credit rate = Fuel tax credits

The resulting amount is what if entered at label 7D on a BAS (remember to keep a record of calculations). Remember however the availability of the simplified method.

Keeping records

Accurate records are essential to ensure every fuel tax credit is accounted for. The ATO says a taxpayer needs to show:

  • the type and quantity of fuel acquired for business activities
  • the date it was acquired
  • that the fuel was used in a business
  • the business activities it was used in, such as whether it was for travelling on a public road or in other activities
  • that the correct fuel tax credit rate was used when calculating a claim.


If you have any questions in relation to fuel tax credits or other business matters, please don't hesitate to contact our office.

DISCLAIMER: All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication will be liable in any way for any loss or damage suffered by any person through the use of or access to this information.


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