Edited version of private advice

Authorisation Number: 1012650879640

Ruling

Subject: Award Transport Payments and PAYG Withholding

Question 1

Are vehicle allowance payments (including amounts calculated on a cents per kilometre basis, minimum quarterly payments or amounts above the minimum quarterly payment), made to employees of the local council pursuant to Section 14 of the Local Government (State) Award 2010 for the employee's use of their vehicle for council business considered Award Transport Payments as defined in Section 900-220 of the Income Tax Assessment Act 1997?

Answer

Yes

Question 2

Is the local council obliged to withhold from Award Transport Payments made to employees under section 12-35 of Schedule 1 of the Taxation Administration Act 1953?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commenced on

1 July 2014

Relevant facts

An entity employs staff and a relevant Act covers certain aspects of staff employment.

The Act makes provision for payment of a particular allowance to employees in certain circumstances.

Employee's use of their own vehicle

The entity pays a vehicle allowance to employees who are required to use their own vehicle in, or in connection with, the performance of their duties for official business of the entity. Such employees are paid an allowance for each kilometre of authorised travel as outlined in the Act. The entity may require an employee to record full details of all such official travel in a log book. The vehicle must be owned by the employee.

Minimum quarterly payment

The minimum quarterly payment is designed to compensate employees for the various costs of running and maintaining their vehicle to be used by them when business needs dictate a necessity to use their own personal vehicle for official entity business.

Where an employee uses their vehicle for official business and it is available continuously when the employee is on duty, the employee shall be paid the minimum quarterly payment as set out in the Act.

The minimum quarterly payment does not relate to accommodation or meal expenses incurred when travelling on work.

In addition to the minimum quarterly amount the entity pays its employees an additional amount which it believes is reasonable to pay employees.

Where an employee uses their vehicle for official business on an intermittent, irregular or casual basis the employee shall be paid for the number of kilometres travelled on official business and shall not be entitled to the minimum quarterly payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 900-220

Income Tax Assessment Act 1997 Subsection 900-220(1)

Income Tax Assessment Act 1997 Subsection 900-220(2)

Income Tax Assessment Act 1997 Subsection 900-220(3)

Income Tax Assessment Act 1997 Section 900-225

Income Tax Assessment Act 1997 Subsection 995-1(1)

Taxation Administration Act 1953 Section 12-35 to Schedule 1

Reasons for decision

Question 1

Section 900-220 of the ITAA 1997 defines an Award Transport payment.

Subsection 900-220(1) of the ITAA 1997 states an Award Transport payment is a transport payment covering particular travel that was paid under an industrial instrument that was in force on 29 October 1986.

Subsection 900-220(2) of the ITAA 1997 defines a transport payment as an amount your employer pays you, or is to pay you, for travel by you in the course of working for the employer that is:

(a) An allowance (or part of an allowance) for the sole or main purpose of covering your transport expenses; or

(b) A reimbursement to which section 15-70 applies that is for the whole or a part of a car expense. However, an amount is not a transport payment if it is, or is part of, a travel allowance.

Subsection 900-220(3) of the ITAA 1997 defines a transport expense as a loss or outgoing to do with transport, including the decline in value of a depreciating asset used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport.

Section 900-225 of the ITAA 1997 states an industrial instrument that comes into force in substitution for another industrial instrument is taken to be a continuation of the original instrument.

Under subsection 995-1(1) of the ITAA 1997 an industrial instrument means:

(a) an Australian law; or

(b) an award, order, determination or industrial agreement in force under an Australian law.

In this case the vehicle allowance payments (payments using the cents per kilometre for actual travel, the minimum quarterly payments or amounts above the minimum quarterly payment) made to employees of the entity for travel they make in the course of working for the entity meet the transport payment, and the transport expense definitions. The Act also meets the meaning of an "industrial instrument".

As all conditions have been satisfied the payments (payments using the cents per kilometre for actual travel, minimum quarterly payments or amounts above the minimum quarterly payment) made to employees for travel they make in the course of working for the entity are considered award transport payments under subsection 900-220(1) of the ITAA 1997.

Question 2

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)

Further detail of the tax treatment for allowances under individual circumstances 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.

First Table

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 states the allowance paid must be shown separately in the allowance box with an explanation on the employee's payment summary.

The requirement in Table 1 is that where allowances are paid for expected deductible expenses, for example motor vehicle for work-related travel, including cents per kilometre payments in excess of Australian Taxation Office (ATO) rate. The approved rate is a rate which is less than or equal to the ATO rate plus 1.5 cents and varies depending on the engine capacity of the vehicle.

Second Table

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 section 12-35 of Sch 1 to the TAA states an entity must withhold an amount from allowances it pays to an employee, therefore the entity must withhold from allowances it pays to its employees. However, if the conditions in Table 2 are met there is no requirement for the entity to withhold from the allowance.

Obviously these conditions will differ between individual employees consequently, the decision whether to withhold from the payment of a particular allowance will depend on the circumstances of the individual who is receiving the allowance.