Edited version of your written advice

Authorisation Number: 1012726450095

Ruling

Subject: Correct rate of withholding

Question

Is the entity obligated to withhold tax from the full amount of an allowance paid to an employee for the work-related use of their vehicle where the rate paid is above the ATO cents per kilometre rate in the 2014-15 financial year?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

The entity is in business.

The entity paid an allowance to an employee for their use of their motor vehicle for work-related travel using the cents per kilometre method at the rate higher than the ATO rate.

The total amount of work-related kilometres travelled by the employee in their vehicle was less than 5,000 kilometres.

The employee used a vehicle with an engine capacity of above 2.6 litres for work-related purposes.

The Australian Taxation Office (ATO) rate for a vehicle with an engine capacity of over 2.6 litres is 77 cents per kilometre in the 2014-15 financial year.

Relevant legislative provisions

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

Detailed reasoning

Section 12-35 of Schedule 1 to 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 (the bulletin).

There are two tables in the bulletin. The first table lists the various types of allowances that a payee might receive and describes 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 which the payer is required to withhold from for allowances:

• paid for working conditions, qualifications or special duties

• for non-deductible expenses

• for being on-call; and

• for expected deductible expenses such as:

• tools

• compulsory uniform or dry cleaning

• overseas accommodation for deductible travel; and

• motor vehicle for work-related travel, including cents per kilometre payments in excess of the Australian Tax Office (ATO) rate.

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. Allowance types such as the following are included:

• award transport payments

• laundry allowance for deductible clothing

• award overtime meal allowances

• domestic or overseas travel allowance; and

• cents per kilometre car expenses payments using the approved rates where:

• the usage is up to 5,000 business kilometres; and

• the usage is in excess of 5,000 business kilometres.

In this case the second table is not able to be used as the rate of the allowance paid to the employee is in excess of the ATO rate. The second table is the only table where the amount to be withheld is not the full amount. Under the first table the payer has no such option. As the second table cannot be used the first table must be used. The employee received a motor vehicle allowance for work-related travel which is in excess of the ATO rate therefore the entity is obliged to withhold from the full amount of the allowance.