Edited version of your private ruling

Authorisation Number: 1012547998478

Ruling

Subject: Car payment

Question

Is your cents per kilometre payment an assessable allowance that is included on your tax return?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You use your own car for work related travel.

You record your kilometres used for work related travel and after a period you submit the distances to your employer.

Your employer pays you an amount per kilometre for your work related kilometres.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 15-70.

Reasons for decision

Section 15-70 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes a reimbursement mentioned in section 22 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) that, but for that section, would be a fringe benefit provided to the taxpayer.

Section 22 of the FBTAA provides that a reimbursement of car expenses received, in respect of the employment, by an employee from the employer is an exempt car expense payment benefit. Briefly, the conditions for exemption under section 22 of the FBTAA are:

§ the benefit is a reimbursement of the employee by the employer for an expense incurred by the employee where the expense is a car expense under Division 28 of the ITAA 1997,

§ the car must be owned or leased by the employee and not be the subject of a car benefit provided to the employee,

§ the reimbursement must be calculated by reference to the distance travelled by the car (that is, on a cents-per-kilometre basis).

The combined effect of section 22 of the FBTAA and section 15-70 of the ITAA 1997 is that a reimbursement of car expenses on a cents-per-kilometre basis is not subject to fringe benefits tax, but is included in the assessable income of the employee.

Although the FBTAA uses the term reimbursement, it is necessary to determine the treatment of the payment for income tax purposes.

Taxation Ruling TR 92/15 sets out the distinction between an allowance and a reimbursement.

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.

A payment is a reimbursement when the recipient is compensated exactly 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 receive a set amount regardless of petrol prices or other car costs you incur. You are not required to produce receipts to your employer to receive the payment. The payments that you received are considered to be an allowance rather than a reimbursement.

Allowances received by employees are generally assessable income.

Taxation Ruling TR 2004/6 states at paragraph 12 that all allowances must be shown as assessable income in the employee's tax return unless the following exception applies:

§ the allowance is not shown on the employee's payment summary;

§ the allowance received is a bona fide overtime meal allowance or a bona fide travel allowance;

§ the allowance received does not exceed the reasonable amount; and

§ the allowance has been fully expended on deductible expenses.

There is no similar exception for cents per kilometre payments. As your payment does not satisfy the above requirements, it is not excluded from your tax return.

However, please note you are entitled to a deduction for your work related car expenses.

Car expenses

Section 28-12 of the ITAA 1997 provides that a deduction for deductible car expenses can be made using one of four methods if you owned a car.

The four methods of calculating deductions are:

· 'cents per kilometre' method

· '12% of original value' method

· 'one-third of actual expenses' method, and

· 'log book' method.

You are only entitled to use the 12% of the original value method and the one-third of actual expenses method if your car has travelled more than 5,000 deductible kilometres in the income year.

To use the log book method, you need a logbook so you can work out the percentage of deducible travel. You also need to keep odometer readings at the start and end of the relevant year and keep written evidence of your car expenses.

To use the cents per kilometre method, you calculate your deduction by multiplying the total number of deductible kilometres your car travelled in the income year by the number of cents based on your cars engine capacity. The number of business kilometres is limited to 5,000. Any deductible kilometres travelled in excess of 5,000 are disregarded. Under this method, you do not need receipts of your expenses. You only need to keep a record of your deductible kilometres travelled.

Please note, the cents per kilometre rate set by the Commissioner in calculating a deduction for car expenses takes into consideration the running costs of your car. Therefore when use the cents per kilometre method, no additional deduction is allowed for the running or maintenance costs of your car.