Edited version of your written advice

Authorisation Number: 1012862256508

Date of advice: 19 August 2015

Ruling

Subject: Employer payments

Question 1

Is a payment that was made to you by your employer that was calculated under the 'cents per kilometre' method, regarded as a reimbursement?

Answer

No

Question 2

Is a payment that was made to you by your employer that was calculated under the 'cents per kilometre' method, regarded as an allowance?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

You were required by your employer to use your own car to travel to several destinations for work.

During this time you were required to keep details of the distances travelled.

At the end of each pay period you would submit a voucher with these details to your employer.

You were then paid an amount by your employer calculated at the Australian Tax Office's recommended 'cents per kilometre' rate for your vehicle.

These amounts were not taxed.

The total distance travelled in the year for which you received payment from your employer was x,xxx km.

Your payment summary for the year showed the total amount you received as this payment, as an assessable untaxed allowance.

You have submitted a copy of this payment summary.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Whether a payment is characterised as a reimbursement or an allowance has a direct impact on its assessability as income.

Taxation ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement 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 have received payment of an amount based on the calculation of 'cents per kilometre' method. The ATO 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 during the year when petrol prices change. The cents per kilometre payment is not an exact reimbursement of the employees' actual car expenses. Consequently the payment is regarded as an allowance and not a reimbursement.

You should note that on our website ato.gov.au we advise employers who pay an amount using a cents per kilometre method to show the amount on their employee's payment summary separately in the allowance box. Therefore, your employer has acted correctly in showing your cents per kilometre payment as an allowance on your payment summary.