Article

Payroll Q&A ‘ Treatment of car allowance paid to employee re employer provided car

An organisation pays a lump sum car allowance to certain employees in relation to cars provided by the employer to the employee. Employees use car for business and private purposes. Are these allowances subject to PAYG withholding and how should they be shown for Payment Summary reporting purposes?

This is a feature article available to the public. For access to all articles from TaxEd, please click here to become a member.

Question

Our organisation pays a lump sum car allowance to certain employees in relation to cars provided by the employer to the employee. Employees use these cars for business and private purposes. Are these allowances subject to PAYG withholding and how should they be shown for Payment Summary reporting purposes.

Answer

Section 51AF ITAA 1936 provides that this type of allowance (where a car fringe benefit is being provided by employer) does not create a tax deduction for the employee.

As such, it needs to be included as income on the employees PAYG Summary.

As to where it appears – the following ATO guidance suggests it is required to be rolled up into gross payment received by the employee and shown as such on the Payment Summary (as opposed to being shown separately as an allowance). Source: https://www.ato.gov.au/Business/PAYG-withholding/Payments-you-need-to-withhold-from/Payments-to-employees/Allowances-and-reimbursements/Withholding-for-allowances/

See the extract from ATO website below:

Allowance type Examples of allowances Are you required to withhold? Include on payment summary? If so, how? Does super guarantee apply?
Allowances for non-deductible expenses Part-day travel (no overnight absence from employee’s ordinary place of residence)

Meals (not award overtime meal allowance or overnight travel allowance)

Motor vehicle for non-deductible travel – eg home to work, including cents per kilometre payments

Yes Yes (include total allowance in gross payment) Yes

Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.