Motor vehicle allowances
If you pay your employee an allowance for using their private car for your business’s purposes, all or part of this allowance may be exempt.
The exempt component of a motor vehicle allowance depends on the number of kilometres the employee travels in a certain period for business purposes. If the allowance you pay your employee is 75c or less per kilometre, it is exempt from payroll tax.
You must calculate the number of exempt kilometres by one of the approved methods:
Continuous recording method
Add up the distances travelled for each business journey your employee makes. With this method, you must record the:
- odometer readings for the start and end of each journey
- purpose of the journey.
Averaging method
If it is difficult to separate the car’s private and business use, you can calculate the vehicle’s business use over 12 weeks and determine business kilometres as a percentage of the vehicle’s total use.
In those 12 weeks, you must record the:
- odometer readings for each business journey
- purpose of each journey
- total distance the car travels
- points at which the odometer was replaced or recalibrated.
Example
Night Pty Ltd wants to use the averaging method to calculate Bob’s exempt kilometres for October 2009. Bob keeps a log book from 1 July 2009 to 23 September 2009. During this time, Bob travels a total distance of 50,000 km, and works out from the odometer reading that he travelled 40,000 km for business. In October, Bob travels 20,000 km in total and receives an allowance of $18,000.
| Bob’s percentage of business use is |
40,000 / 50,000
= 80%
|
| The number of exempt kilometres for October is |
20,000 km x 80%
= 16,000 km
|
| If the exempt rate is 75c/km, Night Pty Ltd could receive an exemption on an allowance of |
0.75 x 16,000km
= $12,000
|
| Therefore, Night Pty Ltd only needs to include as taxable wages |
$18,000 – $12,000
= $6,000
|
Commissioner's discretion
If neither the continuous recording or averaging methods are practical for you, you can suggest your own method of calculating the exempt kilometres and ask us to approve it.
