KMs are not included in PAYG. However, they are taxable when greater than the amount of 0.72 per KM. But for SCHADS award, it specifies that we must pay 0.99 per KM. So the amount between 0.72 and 0.99 is taxable but in Xero there is no way to account for this. We were told by Xero to:
1. Create two allowance pay items:
- One for the non-taxable portion (up to the ATO rate of 72 cents per km)
- Another for the taxable portion (the difference between 72 cents and 99 cents per km)
2. Add a post-tax deduction pay item to offset the allowances.
3. When processing the pay run:
- Add both allowance items, entering the number of kilometres as the quantity
- Add the deduction for the total amount paid through expenses
But this is way too complex for the amount of workers we have. It wouldn't auto export and we need to manually adjust this everytime.
So I'm wondering if do we need to make mileage a taxable pay item when paying a higher rate of KMs? or it is up to the employees to manager their accumulated totals?
I want to know how ATO would deal with this.
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3 replies
G'day @MashedPotato08 ๐
This payment is the #1 most misunderstood payment to employees! You'd think the ATO would have fixed that dreadful Withholding for Allowances guidance by now, as it's clear it's not working ๐
Let me clarify a few things:
- C/km allowance, like any other allowance, is a payment subject to withholding
- Certain expense allowances are addressed in the Legislative Instrument, where, if the conditions are met, the withholding is varied to nil up to the ATO rate/limit
- All awards that have a c/km allowance pay at a rate in excess of the ATO reasonable rate. BTW, that rate is $0.88c.
- Conditions to vary the withholding to nil for a c/km allowance are defined in the ATO STP2 Employer Guidance. Business purpose only (narrowly defined), car (specific definition) that is owned, leased (not novated leases) or hired by your employee, up to 5,000 business km paid in the FY.
It isn't a reimbursement, it's an approximate of the cost incurred so is an allowance that is assessable income, assumes the taxpayer will claim a deduction, else they may get a tax bill.
Most payroll products have an online claim form, asking questions to determine if the conditions are met and resulting in the correct pay code that may be further processed in the payroll to split it, if required, into the "non-taxable in payroll" amount up to the ATO reasonable rate (up to 5,000 km) and the taxable amount.
I know nothing whatsoever about the payroll product you're using but it sounds like a work-around? I guess if that's the way you need to meet your tax obligations in that product, then okay ๐ค But the tax, super and reporting obligations are mandatory, not optional. I have given you links to ATO's requirements ๐ค
If the process advised by your payroll product provider isn't suitable to you, consider other options that automate it for you ๐
Deanne
Hi Deanne, may I know how to manage when 5000 kms has been reached? If we were to tax the entire KM what would be the implications?
Yes, exactly ๐ฏ, @MashedPotato08. No variation to PAYGW once 5,000km has been paid ๐ค Deanne
