Understanding fuel surcharges

A fuel surcharge (sometimes called a fuel levy) is an additional fee that businesses may apply to help manage the rising and unpredictable cost of fuel. Many industries rely on fuel as a core part of their operations. Because fuel can represent a significant portion of operating expenses, even small changes in fuel prices can affect a business’s capacity to remain sustainable and continue delivering services.

A fuel surcharge provides a practical way for businesses to respond to these fluctuations without needing to constantly adjust their standard pricing.

Why businesses use a fuel surcharge

A fuel surcharge helps businesses manage fuel‑related cost changes in a fair, transparent and consistent way.

Below are some of the key reasons many industries rely on this approach:

• Protecting profit margins – it helps businesses remain viable by offsetting sudden or significant increases in fuel costs.
• Supporting continuity of services – it allows businesses to maintain reliable operations by managing one of their most variable expenses.
• Fairness and transparency for customers – it offers predictable pricing by linking adjustments to recognised fuel price indexes or established calculation methods.
• Reducing the need for constant contract renegotiations – it keeps standard rates stable by adjusting only the fuel component when prices shift.

A clear, easy‑to‑understand fuel surcharge helps businesses manage changing fuel costs while maintaining trust and transparency with customers. A good model is simple, consistent and based on a method customers can easily follow. The key elements of a fair fuel surcharge structure include:

• Using an accepted methodology – base your surcharge on a recognised or industry‑standard calculation method to ensure it’s fair, predictable, and easy for customers to understand.
• Being transparent with customers – clearly explain in writing how the surcharge is calculated, including any links to established fuel price indexes or reference sources, and whether it’s calculated net of GST and fuel tax credits. Make sure the surcharge reflects your actual fuel usage and is not based on other parts of the job, such as loading or unloading.
• Applying a consistent approach – keep your calculation method the same over time and update the surcharge at regular intervals, such as weekly or monthly, instead of changing your standard rates.
• Applying GST correctly – if your business is registered for GST, the fuel surcharge forms part of the taxable supply and GST must be applied to the surcharge amount.
• Keeping charges separate – list the fuel surcharge as its own line item rather than combining it with other fees (such as handling or tolls), helping customers see exactly what they are being charged for.

To calculate a fair and consistent fuel surcharge, it’s important to start with a clear net base fuel price – including deducting GST and any Fuel Tax Credits – and use a regular review method. This ensures your surcharge stays transparent, easy for customers to understand, and reflective of real‑world fuel movements.

Choosing a base fuel price

Select a reliable and publicly available fuel price source to use as your starting point. Many businesses use recognised fuel price indexes, such as the Australian Institute of Petroleum’s Terminal Gate Prices (TPG), because they provide consistent, independently verified data. Using an official reference point helps customers understand how your surcharge is calculated and builds confidence that pricing changes are fair and not arbitrary.

A good base fuel price is typically:

• Stable at the time you set it – chosen during a period without unusual volatility.
• Linked to a recognised index – so customers can independently check the figures.
• Documented clearly – so your team and customers know exactly which price you’re using as the baseline.

Deducting GST and fuel tax credits

• To calculate your base price, you will need to deduct both GST and the value of any fuel tax credits your business is eligible to claim.
• The latest Fuel Tax Credit rates are available on the Australian Taxation Office (ATO) website, which is updated regularly to reflect current rates and eligibility requirements.

Reviewing and updating your surcharge

Fuel prices can change quickly, so it’s helpful to regularly compare your current fuel price to your base price to see whether the surcharge needs to increase or decrease.

Businesses generally choose the following review approaches:

• Quarterly or monthly review - Useful in periods of relatively steady fuel prices. It smooths out short‑term fluctuations and reduces the need for frequent adjustments.
• Weekly review - Helpful when prices are moving more rapidly. This approach ensures the surcharge remains closely aligned with actual fuel costs and avoids the risk of under‑ or over‑charging.

Whichever method you choose, the key is consistency – using the same review frequency, the same fuel price source and the same calculation method over time. This helps ensure your surcharge remains predictable, transparent and fair for both your business and your customers.

Many businesses use a straightforward calculation to work out their fuel surcharge. This method helps ensure the surcharge is fair, transparent and linked to actual changes in fuel costs.

To calculate a surcharge, you’ll generally need:

• the value of the invoice, excluding GST
• your base fuel price – the benchmark fuel price you selected when you first set up your surcharge, excluding GST and fuel tax credits
• the current fuel price based on the previous period average – taken from the same independent source as your base price, also excluding GST and fuel tax credits
• your fuel cost as a percentage of your total costs – based on a clear understanding of the litres of fuel your business uses. This will look different for every business, depending on how fuel is used across your operations.

Businesses typically use fuel prices and invoice values excluding GST when calculating the surcharge, as GST is not a cost to either the business or the customer (provided both are registered for GST). The surcharge is then calculated on an invoice‑by‑invoice basis.

The percentage contribution of fuel to your business costs and of your fees will vary depending on the nature of your work and your costing model.

How the calculation works

A common formula used is:

( (Current fuel price – Fuel tax credit) – (Base fuel price – Fuel tax credit) )/ Base fuel price – Fuel tax credit

× (Fuel cost % of total costs)

= Fuel surcharge percentage

This percentage is then applied to the value of the invoice (ex‑GST) and listed as a separate line item for transparency.

Example 1 – Transport service business

Step by step calculation:

Step One – calculate the increase in fuel price from the base price

247.17 – 153.71 = 93.46

Step Two – calculate the difference as a percent change from the base price

93.46/153.91 = 60.8%

Step Three – calculate the percentage change in price by the percent fuel is of your total costs

60.8% X 27.5% = 16.72%

Step Four – add a fuel surcharge of 16.77% of the total invoice value (ex GST)

$1,000 X 16.72% = $167.20

Example 2 – Small delivery operator

Step by step calculation:

Step One – calculate the increase in fuel price from the base price

247.17 – 153.71 = 93.46

Step Two – calculate the difference as a percent change from the base price

93.46/153.71 = 60.8%

Step Three – calculate the percentage change in price by the percent fuel is of your total costs

60.8% X 18% = 10.94%

Step Four – add a fuel surcharge of 10.94% of the total invoice value (ex GST)

$154.55 X 10.94% = $16.91

A clear and transparent invoice helps customers understand exactly how the fuel surcharge has been applied. While every business formats its invoices differently, it’s best practice to list the fuel surcharge as a separate line item before GST is calculated. This helps customers see the surcharge clearly and understand how it fits within the total amount payable.

Below is a simple example of how a fuel surcharge may appear on an invoice:

Example invoice layout

Clear, open communication can make a big difference when introducing or updating a surcharge. While most customers won’t welcome an additional cost, they are far more likely to understand – and accept – it when they know why it’s needed, how it is calculated and what to expect in the future.

Every customer will respond differently. Some may be able to absorb the increase within their own operating costs, others may pass it on (in part or in full) to their clients, and a small number may need to reassess their purchasing. Clear communication helps all customers plan ahead and make informed decisions.

It’s best to notify customers in writing, rather than mentioning it casually or waiting for them to find the surcharge on an invoice. Written communication provides clarity, consistency and a reference point that customers can return to later.

Below is an example of how you might explain the introduction or update of a surcharge temporarily or long term. You can adapt the wording to reflect your business, your industry and your relationship with your customers.

Template for Introducing a Fuel Surcharge to Customers

A dedicated Fuel Supply webpage is available on the TasALERT platform.

This page provides the most accurate and up-to-date public information and is the primary place to stay informed about Tasmania’s fuel supply situation.

Regular Fuel Supply Updates from the Director of Energy Planning are also available online. These updates offer additional context about the current fuel situation and any actions underway.