Something I see more and more is confusion and error surrounding motor vehicle allowances.
Allowances are payments made in addition to normal salary and wages and are designed to compensate the employee for additional costs incurred in undertaking their duties. They are definite predetermined amounts and are paid even if the employee does not choose to spend the full amount.
Work-related expenses that may be able to be claimed as a tax deduction by the employee – such as car travel – are subject to the normal PAYG withholding rules unless the Taxation Office has issued a PAYG variation.
If the value of the payment is a flat amount available to all who may use their car for business purposes, then the amount is superable as it is paid by unconditionally – whether the employee has incurred the expense or not.
If you pay the allowance tax free, then the employee will need to claim all of it as a tax deduction and require the supporting documentation. If they did not incur an expense to the value of the allowance, then they are in for a nice little tax debt at the end of the year!
There is a difference between motor vehicle allowance and a reimbursement for kms travelled – the first is an allowance that is subject to PAYG and the second is a reimbursement to the employee based on the amount of kms travelled and therefore not subject to PAYG (up to 5000kms) – many people use the term ‘motor vehicle allowance’ to refer to what is actually known as the ‘cents per kilometre car expense payment’.
The only time you would NOT apply PAYG to a motor vehicle allowance is if you have used a calculation method to determine the amount of the expense that is going to be incurred. This would then be deemed an expense allowance and under Superannuation Guarantee Ruling 2009/2 it would not be superable as it would be an expense allowance – not salaries and wages or OTE.
If you have any topics you’d like me to cover in future blog posts, please get in touch with me at tracy@austpayroll.com.au
Tracy is the founder and chief executive officer at the Australian Payroll Association and the director of Payroll HQ.
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