Hiya @CathT17
The purpose of the c/km allowance is to compensate the employee for the expense incurred by using their private vehicle for business purposes.
The rate paid is intended to compensate the employee for a range of costs: fuel and oil, repairs and servicing, insurance, depreciation etc. It is exactly the definition for an allowance. The ATO guidance on c/km and the reasonable amount is intended to represent the rate to compensate for those assumed expenses.
If it was a reimbursement, the employee would be providing you with a receipt for the exact cost and you would pay it to transfer the cost from the employee to the business.
C/km allowance IS income and must be reported: always has been.
This means that the employee can claim for actual expenses when they do their tax returns by using any of the ATO methods for substantiation.
The excellent ATO STP2 Employer Guidance on this topic may assist you.
Deanne
Hi Deanne
Thanks for your reply. I am a student and my question came about from a tax course I am doing and I was finding different sources of information were giving me slightly different impressions, so I thought I'd come here for a clearer answer. I think the key issue is that I was thinking of a c/km allowance as a fixed amount paid to an employee as part of their annual salary, based on say 5000km/year at a particular rate. There would be no expectation that the employee would necessarily spend the full amount, hence it would be income and they could claim a deduction for what they do actually spend. I did not realise that a payment for actual kms travelled, made after the fact, was also an allowance - not a reimbursement.
Tax is confusing!
Thanks again, Cath
@CathT17 you are right about the flat rate not measured by kilometres, because there is not ONE thing that is c/km. Apologies, I thought you were a business representative, so my answer is worded a little oddly then! 🤪
Industrial instruments allow for different ways to remunerate employees and the ATO provides tax concessions ONLY to the payments that meet the many conditions they stipulate.
The conditions include:
- measuring the payment via the specific number of km traveled
- if it is for a business purpose (specific definition not the general definition)
- if it is a car (not a different vehicle such as a motorcycle, van, ute)
- then there are measures - the rate/km and a limit to the number of business km
Yes, payroll and tax and super guarantee are very complex. There is not ONE place on the ATO website you can go to see the PAYGW, SG and STP obligations for expense allowances 😢 so there's the challenge to find guidance too. The STP2 Employer Guidance is a good place to start.
Good luck in your studies - you are asking the right questions.
Deanne
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