KM Reimbursement - Employee

 Author: RachATO(Community Support)Community Support

26 Sept 2022

Hey @Giglamesh,

Firstly, let's confirm the type of payment you’re receiving. Allowances are an estimate of the expense, where reimbursements cover the exact amount of the expense incurred If you're being paid based on the number of kms travelled using the cents per km method, the payment would be an allowance. If you're paid based on the kms you've travelled for the exact price you've paid at the petrol bowser, this would be a reimbursement. Because reimbursements put you back to square one where you're not out-of-pocket for any part of the cost, you can't claim a tax deduction. Based on the information in your post, the income statements may be right in noting the payments as an allowance.

The entire amount of the allowance should be included on your tax return. Amounts paid using the cents per km method up to 5,000 aren't subjected to tax withholding by your employer, however they do need to withhold from amounts that exceed the 5,000km limit, or amounts above our cents per km rate for the financial year. So, for tax lodgement purposes, you declare the entire allowance, then claim a deduction for your work-related portion of use. By effect, you shouldn't be out of pocket for expenses that arise from using your car in the course of earning your assessable income.

Although we set a cents per km rate, the actual rate your employer applies depends on your work arrangement and if you're paid under an industry award that specifies it's own rate.

Even though your employers used the cents per km method for your allowance, if you're eligible to claim a deduction against the allowance, you can use either method to determine your tax deductible car expenses.