Hiya @TW306 👋
This is the #1 most misunderstood allowance in payroll 🏆
I'm a bit confused about which question relates to which allowance 😵💫
Both types of allowances are payments subject to withholding and both are reported in STP2. They are reported differently, refer to the ATO STP2 Employer Guidance.
Flat rate car allowance is taxed as per salary and wages.
C/km allowances tax is much more complex 😖
There are conditions that must be satisfied to determine if the PAYG withholding may be varied to nil for all/part of the allowance:
- Purpose - if the purpose of the travel doesn't meet the very prescriptive ATO definition of business, then it is taxed as for salary and wages. Else, assess the next condition.
- Vehicle - if the vehicle isn't a car that is owned, leased (excludes novated leases) or hired by the employee then it's taxed as per salary or wages. If both of these conditions are met, then PAYGW may be varied as follows:
- Rate/Limit - only the amount/km that doesn't exceed the ATO reasonable rate, up to 5,000km PAID in the FY may have PAYGW varied to nil. That is, if you pay 0.99c/km, 0.88c/km has no tax withheld and 0.11c/km is taxed as for salary and wages, up to 5,000 business km. Once you've paid the limit of 5,000 km in the FY, all subsequent payments are taxed as for salary and wages.
The Withholding variation to nil assumes the employee will claim a tax deduction, else ATO will require them to pay tax on it. 😉
If your employees are claiming c/km on a novated lease car, no PAYGW variation can be applied to their allowance, as the conditions aren't met.
Payroll is so easy, isn't it? 🤓
Deanne
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