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Payroll Q&A – What is the treatment of an allowance paid for the use of an employee’s truck?

Are there any PAYGW or superannuation issues in relation to allowances paid for use of an employee’s truck?

Question

Council pays an employee an allowance for the use of the employee’s truck.

It is understood the employee provides services to 3rd parties as an owner driver (using the truck) on weekends.

The allowance is set at a ‘day rate’ equivalent to a 3rd party hire charge for an equivalent truck.

Are there any Pay as You Go Withholding (PAYGW) and superannuation issues in relation to the allowance?

Answer

The income tax law confirms that income of a person includes the value of allowances provided to a person in respect of, or for or in relation directly or indirectly to, any employment of the person.

The Pay As You Go Withholding (PAYGW) rules require an employer to deduct PAYGW from payments of allowances paid to an individual as an employee.

The ATO has established rules regarding from which allowances PAYGW is required and the inclusion of allowances in payment summary (now termed an income statement) reporting obligations. The ATO rules can be viewed at the relevant pages on the ATO website dealing with Withholding from allowances.

The treatment of the allowance in question is determined by whether the arrangement is part of the persons employment or an amount payable simply for the ‘hire’ of the vehicle (without regard for the employment connection).

Where the arrangement is akin to Council hiring a vehicle from a 3rd party (but where the 3rd party happens to be an employee) it is not in the form of an allowance paid to an individual as an employee and PAYGW (or superannuation issues) would not arise. Instead, it would be expected the individual would invoice Council and deal with all related tax and GST issues (which would include charging GST where the individual is GST registered).

Where, however, the allowance relates to an arrangement under which the employee supplies the vehicle as a part of performing their employment duties and (for example) is responsible for driving the vehicle whilst it is being used for Council work, the arrangement takes on the form of an allowance paid to an individual as an employee. It is similar (although not always identical) to a car allowance to cover business use of an employee’s vehicle.

In this scenario, PAYGW would apply as per ‘deductible expenses’ type expenses shown at Tables 1a and Table 1b of the ATO prescribed treatment that is set out on the ATO website at Withholding from allowances. It is important to note that a truck with greater than one tonne load carrying capacity is not a ‘car’ for tax purposes and the ATO PAYGW rules relating to car allowances do not apply.

The ATO accepts that, in the absence of an agreement otherwise (term of contract or award requiring superannuation to be provided), allowances for provision of motor vehicles (trucks or cars) for work related travel are not normally ‘ordinary times earnings’ and therefore superannuation does not apply.