Edited version of your private ruling

Authorisation Number: 1012590479784

Ruling

Subject: PAYG Withholding

Question

Are payments made by the entity of motor vehicle expense allowances to employees on a "cents per kilometre" basis required to have PAYG Withholding amounts deducted on every dollar paid where the rate of payment exceeds published ATO rates?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts

The entity has an Enterprise Bargaining Agreement (EBA) in place for its employees.

The EBA covers motor vehicle allowances for an amount greater than the ATO prescribed rates per kilometre. This rate is used irrespective of the size of the engine used.

The entity routinely pays "cents per kilometre" expense claims from employees.

Payments as outlined above are subject to PAYG Withholding and are included as "Allowances" on employee payment summaries in the allowances box.

The entity assumes the employees claim deductions against these allowances.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

Section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA) states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity)

In this case the entity pays motor vehicle allowances to employees therefore it must withhold from those payments.

The correct tax treatment for allowances is covered by PAYG Bulletin No 1.

There are two tables in the bulletin. The first table lists the various types of allowances that a payee might receive and states how these allowances must be treated by the payer. Whereas the second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary.

The first table covers allowances for non-deductible expenses and states PAYG must be withheld from allowances for motor vehicles for non-deductible travel e.g. home to work travel. It also states the allowance paid must be shown on the employee's payment summary and included in the gross payment.

The first table also covers allowances for expected deductible expenses e.g. motor vehicle for work related travel. It also states the allowance paid must be shown separately in the allowance box with an explanation on the employee's payment summary.

The second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary. This table can only be used where the payee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance and the amount and nature of the allowance is shown separately in the accounting records of the payer. If these conditions are met there is no obligation to withhold from cents per kilometre car expense payments when the tax office rates are used and the payments made up to 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled.

In this case as the EBA allows for an allowance which is higher than the Tax Office prescribed rate, table two is not able to be used by the entity. If any motor vehicle allowance is paid by the entity to its employees (whether the expense is deductible or non-deductible to the employee) PAYG must be withheld from the total amount of the allowance as outlined in table 1. This is the case irrespective of whether the allowance paid by the employer is greater than the Tax Office prescribed rate.