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Subject: car allowance payments
Question 1
Are you required to withhold an amount from a cents per kilometre payment to your employees?
Answer
Yes.
Question 2
Are you required to show the cents per kilometre allowance amount on the employee's payment summary?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
Under the relevant award, you pay your employees an allowance of 74 cents per kilometre when they use their private motor vehicle for business purposes.
The rate you pay does not vary with the car engine capacity. The rate stays the same each year.
Your employees travel more than 5,000 business kilometres during the year.
Relevant legislative provisions
Taxation Administration Act 1953 Schedule 1, Division 12.
Taxation Administration Act 1953 Schedule 1, Section 16-155
Reasons for decision
Taxation Ruling TR 92/15 discusses the difference between an allowance and a reimbursement. Paragraph 2 of TR 92/15 states:
A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.
Paragraph 3 of TR 92/15 states:
A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.
In your case, you pay your employees an amount when they use their vehicle for business travel. The payment is paid at a set 74 cents per kilometre rate. The cents per kilometre rate is based on an estimate of car expenses (for example, petrol, depreciation and registration) incurred per kilometre. The rate is not varied for different car engine sizes or for when petrol prices change. Therefore the cents per kilometre payment you pay is not an exact reimbursement of the employees' actual car expenses. Consequently the payment is regarded as an allowance and is included as assessable income for the employee.
Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA) outlines the payments from which amounts must be withheld. Section 12-35 of Schedule 1 to the TAA states that an entity must withhold an amount from allowances it pays to an employee. The TAA provides some exceptions to this rule, however these exceptions do not apply in your case. Therefore you are required to withhold the relevant amount from the motor vehicle allowances paid to your employees.
Under section 16-155 of Schedule 1 to the TAA an employer must give a payment summary to employees where they have made a withholding payment to the employee. As the motor vehicle allowance is regarded as a withholding payment, the total allowance amount paid to the employee should be shown on the payment summary.
Allowances paid to employees for work related expenses such as motor vehicle allowances, including car expense payments on a cents per kilometre basis are shown separately in the allowance box on the payment summary with an explanation, such as car allowance. That is, the allowance is not included in the gross payment amount on the payment summary.
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