Motor vehicle allowances
A motor vehicle allowance is paid to an employee to compensate them for any business use of their own private vehicle.
How do I calculate the exempt component?
The exempt component of a motor vehicle allowance is calculated using the formula:
E = K x R
where:
E is the exempt component
K is the number of business kilometres travelled during the financial year
R is the exempt rate.
How can a motor vehicle allowance be paid?
A motor vehicle allowance can be paid in one of the following ways:
1) Per kilometre basis
The Fringe Benefits Tax Assessment Act 1986 (the FBT Act) exempts an expense payment benefit if it is a reimbursement of car expenses of a car owned or leased by an employee that is calculated by reference to the distance travelled by the car (i.e. paid on a cents per kilometre basis).
The Commissioner is of the view that exempt benefits are generally not subject to payroll tax even where the exempt benefit may also fit within another part of the definition of wages under the Act. Therefore, a car expense payment paid on a cents per kilometre basis is not subject to payroll tax.
2) Flat amount or fixed amount or fixed amount plus a rate per kilometre
Where an employer has records of the business kilometres travelled in the period covered by the allowance, the exempt component may be calculated. This allowance is only liable if it exceeds the exempt component.
If the employer has not kept records of the business kilometres travelled, the total allowance is liable.
How must business kilometres be recorded?
Business kilometres must be recorded using either the continuous recording method or averaging method used by the Australian Taxation Office. The Chief Commissioner may approve another method and this approval must be in writing.
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