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Car Allowance

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Newbie

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Hello, 

I have recently changed jobs and a car allowance of $18,000pa is included in my package. For the last 8+ years in my pervious roles, i have also had a car allowance as part of my package however it has always come in to my account as an allowance and paid tax free. This amount was then included on my Group Certificate as an allowance and it was then on me, and my accountant, to claim any related business automotive cost (as a percentage of business to personal use) at tax time to account for this allowance.

I beleive it was only then, if i didn't spend all of the allowance on busniess car related costs, that I would have to pay tax on the remaining amount.

However, in my new role they are now taxing my car allowance prior to it being paid into my account at a rate of around 40%. This has significantly dropped the amount hitting my account and has left me with hardly enough to purchase and maintain a decent enough vehicle to complete my work duties (travelling throughout NSW and ACT).

My question is, is this common practice? and is there any way i can apply/request for my car allowance to be paid as that, an allowance, so i am able to afford to purchase and maintain an appropriate car? Then I can just worry about it at tax time when I claim the repayments and other vehicle cost as a percentage of business use.

Thank you very much.

1 ACCEPTED SOLUTION

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Best answer

Devotee

Replies 1

Hi @Kris,

 

Thanks for your post. We can provide general information on how tax applies to your payments - but if you have concerns about how you're being paid, the best place to start is by talking to your employer or payroll and asking why you're being paid this way.

 

Generally speaking, most allowances are considered to be taxable income, and your employer withholds tax from your allowances to help make sure you don't end up with a tax bill when you lodge your return.


If you claim the same kinds of motor vehicle expense deductions each year, and you know how much you usually claim, you can choose to ask us if you're entitled to a pay as you go income tax withholding variation.

 

Under tax law, the Commissioner of Taxation may vary the amount a payer is required to withhold from a withholding payment, to meet special circumstance. This means that if you usually end up with a large refund due to the amount of car expenses you're eligible to claim, you can ask us if your payroll can withhold less tax from your allowance payments.

Withholding variations are a way to balance out your tax - you have less tax withheld on your allowance to maintain your vehicle during the year, but you won't get a big refund at the end of the financial year. If you miscalculate your deductions and you end up with a tax bill due to your variation, you won't be eligible for a variation the following year.

 

If you think this might work for you, have a look at our guide on withholding variations and the PAYG withholding variation application form. You'll need to provide us with detailed information about your salary and wages, and the kinds of deductions you're eligible to claim. If we accept your application, we'll send you and your payroll a letter advising of the new withholding rate on your allowance, usually within 28 days of receiving your online application. Please note that our offices will be closed from 6:00pm Friday 21 December and reopen from 8:00am Wednesday 2 January 2019. Hope that helps!

 

2 REPLIES 2
Highlighted

Best answer

Devotee

Replies 1

Hi @Kris,

 

Thanks for your post. We can provide general information on how tax applies to your payments - but if you have concerns about how you're being paid, the best place to start is by talking to your employer or payroll and asking why you're being paid this way.

 

Generally speaking, most allowances are considered to be taxable income, and your employer withholds tax from your allowances to help make sure you don't end up with a tax bill when you lodge your return.


If you claim the same kinds of motor vehicle expense deductions each year, and you know how much you usually claim, you can choose to ask us if you're entitled to a pay as you go income tax withholding variation.

 

Under tax law, the Commissioner of Taxation may vary the amount a payer is required to withhold from a withholding payment, to meet special circumstance. This means that if you usually end up with a large refund due to the amount of car expenses you're eligible to claim, you can ask us if your payroll can withhold less tax from your allowance payments.

Withholding variations are a way to balance out your tax - you have less tax withheld on your allowance to maintain your vehicle during the year, but you won't get a big refund at the end of the financial year. If you miscalculate your deductions and you end up with a tax bill due to your variation, you won't be eligible for a variation the following year.

 

If you think this might work for you, have a look at our guide on withholding variations and the PAYG withholding variation application form. You'll need to provide us with detailed information about your salary and wages, and the kinds of deductions you're eligible to claim. If we accept your application, we'll send you and your payroll a letter advising of the new withholding rate on your allowance, usually within 28 days of receiving your online application. Please note that our offices will be closed from 6:00pm Friday 21 December and reopen from 8:00am Wednesday 2 January 2019. Hope that helps!

 

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Newbie

Replies 0

Thank you very much Amanda,

 

I am still a little confused on all of this as in my 2 previous jobs, my car allowance was always shown on the Group Cert as an allowance and I was never taxed on it until the i submitted my tax return. In that time I never once had to paid a Tax bill, if anything most of my previous tax returns have been quite decent. At the current rate i am being taxed at close to 40% on the allowance, which is greatly affecting the amount of money available for car repayments, insurances etc.

 

I really need to get to the bottom of it as the current amount of funds clearing into my account is not enough for the vehicle i need to purchase.

 

Thanks again, kind regards.