Most working Australians use vehicles for business travel. While providing company cars was once the norm, many employers are now opting to issue car allowances. This practice helps employees cover the costs associated with using their own vehicles for business purposes.
But what exactly is car allowance in Australia, and how does it work? Is an allowance considered taxable income? What costs does it cover? We'll answer these questions and more in this complete guide.
This article will focus on the rules and guidelines associated with car allowances in Australia. We will cover everything from tax implications to calculation methods to help you decide if car allowances are the right reimbursement method for your business.
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A car allowance is a financial benefit provided by an employer to an employee to help offset the costs of using their personal vehicle for work purposes. This allowance can be used to cover expenses such as fuel, insurance, registration, maintenance, and depreciation.
What is the standard car allowance in Australia?
There's no single "standard" car allowance in Australia. The amount an employer offers varies depending on several factors, including:
Industry standards. Some industries have typical car allowance ranges.
Employee's role. Workers who drive more for work typically receive higher allowances. Those in higher positions may also receive higher amounts compared to those in lower ranked positions.
Company policy. Some companies have set policies for car allowances based on factors like estimated kilometers driven.
According to multiple sources, a typical car allowance in Australia ranges any where from AUD 15,000 to AUD 20,000 per year. However, this is just a reference point; the actual amount can be significantly higher or lower.
It is worth noting that a car allowance, just like mileage reimbursement, does not cover personal vehicle use or commute travel. You can learn more about commute specifics from our detailed commuting mileage reimbursement guide.
Is a Car Allowance Taxable Income in Australia?
Yes. Receiving car allowance adds to your overall salary and is considered taxable income. This means you'll pay taxes on the amount received at your regular rate. However, there is a potential way to reduce your tax bill.
If you use your car for work, you can claim the business-related portion of your car expenses on your tax return. Claiming only applies if you are not reimbursed for the expenses and your travel is work-related.
If you choose the cents per kilometer method to claim car expenses, your deduction is based on a predetermined rate set by the government for each kilometer driven for work. This rate takes into account the typical costs of owning and operating a car, including depreciation (decline in value), registration and insurance, maintenance, repairs, and fuel.
The cents per kilometer method has some key things to remember. For one, the maximum claim for work-related travel is 5,000 kilometers per car each year.
While you don't need to keep receipts for individual expenses like fuel, you do need to maintain records that show how you calculated your business kilometers. Mileage tracking can be a great way to do this. You will also need to be able to prove ownership of the car you're claiming kilometers for.
It's important to understand that the cents per kilometer rate is comprehensive. It covers all car expenses, so you cannot claim any additional deductions for individual car-related costs on top of the set rate.
Here is a table showing a history of rates for financial periods in 2017-2024:
2. The Logbook Method
If you choose to use the logbook method for claiming car expenses, you have the opportunity to claim the actual work-related portion of your car's operating costs.
It's important to note that you cannot claim capital costs associated with your car.
Examples of capital costs include:
the purchase price of a new vehicle
car loan repayments
any modifications you've made (ex: adding tinted windows)
To claim tax deductions using the logbook method, you'll need to keep detailed records of all your motor vehicle expenses as well as proof of car ownership and odometer readings at the start and end of the relevant tax period.
Here's what a valid logbook should include:
It should record all your work-related trips for a continuous 12-week period that reflects your typical pattern of work travel.
Each entry should detail the destination and purpose of the trip, the odometer reading at the beginning and end of the journey, and the total kilometers traveled.
Your logbook can be kept in paper form or electronically using an app. Both are valid for five years unless your work situation changes significantly (such as a job change). If you are using an app, learn how to track mileage for work.
If you plan to claim fuel and oil costs, you can base your claim on either actual receipts you've kept, or an estimate derived from your business mileage records.
There's also a special provision for zero-emissions electric vehicles. If you own one of these vehicles, you can choose to use the ATO's established electric vehicle (EV) home charging rate to estimate your home electricity costs for charging, along with your odometer records. This benefit is not applicable to plug-in hybrid electric vehicles.
Issuing Car Allowance or Providing a Company Car - Which is Better?
Rather than offering a car allowance, some employers prefer to provide company cars for employees to use. But which is the better choice?
When using a company car, the employer provides a vehicle and is responsible for its upkeep. A company car simplifies business travel since workers don't have to worry about gas, maintenance, or insurance costs. If you’re debating whether to give employees vehicle allowances or purchase company cars for your business, check out our car allowances vs company car comparison guide.
Let’s take a look at the pros and cons of each option.
Advantages of a Car Allowance
Reduced Costs: Employers don't have the burden of purchasing, maintaining, or insuring a fleet of vehicles. This can lead to significant cost savings, especially for businesses with a large number of employees who require vehicles.
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Administrative Ease: Car allowances involve less paperwork and administrative hassle than managing a company car fleet or a novated lease. You simply pay the allowance on actual costs, and employees handle the rest.
Potential Tax Benefits for Employees: Workers can claim a deduction on the portion of car expenses used for work purposes through the Australian Taxation Office (ATO). As we mentioned, this can be done using either the cents per kilometer method or the detailed logbook method.
Disadvantages of a Car Allowance
Potential for Abuse: Employees might misuse the allowance by claiming more miles than actually traveled for business purposes. Using a reliable mileage tracking app can solve this problem by recording the exact miles team members cover. Employers can then use this information to calculate car allowances.
Employee Dissatisfaction: Some staff members might find the responsibility of managing car expenses and upkeep burdensome. Since employees will be responsible for all operating costs, they will need to start budgeting and keeping track of expenses.
Advantages of a Company Car
Improved Employee Morale: Offering a company car can be a valuable perk included in salary packages. It can help attract and retain top talent and boost employee satisfaction and loyalty.
Easier Expense Management: The company handles all car-related expenses, providing greater control over budgeting. For example, the company can choose a car brand that falls within their company's budget. Businesses may decide to purchase electric cars to potentially qualify for certain tax reliefs.
Save Employees High Upfront Costs: Not all employees can afford to buy a new car. Providing a company vehicle allows you to recruit and hire top talent that may have been lost because they cannot afford a car lease or finance options.
Disadvantages of a Company Car
Administrative Burden: Managing a fleet requires additional administrative tasks such as renewing vehicle registration, meeting insurance requirements, and scheduling maintenance. A system must be in place to keep tabs on each of these tasks, which can be time-consuming and tedious for managers.
Fringe Benefits Tax (FBT): The company has to pay FBT on the private use of company cars. Depending on the car's value and usage, this can be a significant tax burden.
There are also companies that prefer to offer mileage reimbursement instead of car allowance. With this method, you pay back employees for the exact miles they drive for business purposes. Staff members operate their personal cars for business use, and you compensate them for the costs they incur. To view a comparison of these two options in detail, read our car allowance vs. mileage reimbursement guide.
To qualify for reimbursement, staff members must keep detailed mileage records. The most convenient way to do this is to use the best mileage tracking apps that automate this process. You will need to implement a company policy to ensure everyone is on the same page when it comes to mileage tracking. Customize our mileage reimbursement policy template for this.
How Can Timeero Help You Gain Control Over Your Mileage Expenses?
Managing car allowances in Australia can be complex. You need to ensure fair compensation for employees who use their vehicles for work while keeping costs under control. Timeero offers a range of features designed to streamline this process.
Here's how Timeero can transform your car allowance management:
Mileage Tracking
One of the biggest challenges workers face when it comes to car allowances is accurately tracking work-related mileage. Timeero's automatic mileage tracking eliminates the need for manual mileage logs, reducing errors and saving employees valuable time.
The app captures every mile driven while on the clock, providing a verifiable record for tax and reimbursement purposes. The offline mileage tracker continues recording even in places with spotty internet connection.
Track mileage in real-time with Timeero.
Employees who have access rights can edit their mileage logs, but all edits will be preserved in the Activity Log. The Activity Log sees that car allowances are distributed transparently, adhering to regulations.
Segmented Tracking
Timeero's Segmented Tracking provides a detailed look into employee driving routes and mileage. With Segmented Tracking, employees clock in once at the start of their workday, while the app automatically logs and segments their trips based on GPS data.
This feature eliminates recording manual entries at each location, which reduces administrative burden and ensures all work-related mileage is captured.
Segmented Tracking breaks down employee travel based on individual stops.
The segmented tracking feature provides valuable insights for managing car allowances. You can see exactly where employees travel and the distances covered. There details allow you to adjust your car allowance policies based on actual usage patterns which ensure fair distribution of car allowances based on individual needs.
Increased Efficiency With Geofencing
Timeero's geofencing feature allows you to create virtual boundaries around designated areas, like client sites or offices.
When employees enter or leave the geofenced zone, Timeero automatically prompts them to clock in or out. The prompts eliminate the risk of missed entries and potential overbilling.
A geofenced job site on Timeero.
Geofencing encourages employees to be where they need to be during work hours. Using this feature improves overall efficiency and reduces the risk of unauthorized detours that could inflate car allowance costs.
Location History
Timeero's Location History feature provides real-time and historical insights into employee travel patterns. Using GPS data, you can see the exact route taken by each employee during their workday. This allows you to identify potential inefficiencies, such as employees taking longer routes or making unauthorized stops.
Analyzing location history data can help you make informed decisions about car allowance allocation. If an employee's daily travel needs are minimal, you may be able to adjust their car allowance accordingly. This data-driven approach ensures that car allowance distribution aligns with actual business needs.
View travel patterns such as detours, driving speed, and distance traveled.
Suggested Mileage
Timeero's Suggested Mileage feature helps employees save time and money on fuel costs. Upon entering a destination, the app displays the shortest route and compares the mileage to alternative options. This allows employees to choose the most efficient route, reducing unnecessary travel time and fuel consumption.
Reduce fuel costs and arrive at your destination ahead of time.
By allowing you to save on fuel costs, Timeero's Suggested Mileage translates to cost savings for your business in terms of car allowance reimbursements. Additionally, taking the shortest route means employees spend less time on the road, increasing productivity.
Gain Insights With Reporting
You can generate detailed mileage reports tailored to your specific needs within Timeero. These reports give you access to breakdowns of travel patterns and summaries of monthly mileage expenses.
The data you obtain can help you identify areas for cost savings. For example, if a report reveals that employees primarily work from a single location, you may be able to adjust car allowance amounts to reflect frequency of travel. This approach helps you allocate car allowance resources efficiently.
Timeero allows you to generate custom reports.
Effortless Integration
Timeero integrates seamlessly with popular payroll and accounting software solutions, including QuickBooks, Gusto, Xero, ADP, Paychex, Rippling, Zapier, Vieventium, and Paylocity. These integrations allow you to automatically sync mileage data with your payroll system, streamlining the reimbursement process.
Automatic data transfer eliminates the need for manual data entry, reducing errors and saving valuable time. It also ensures accurate and timely car allowance payments for your employees, fostering trust and a positive work environment.
Use Timeero to Improve Travel Expense Management
Handling car allowances in Australia doesn’t have to be complicated. Investing in Timeero for car allowance management creates a win-win situation for employers and workers.
Employers gain peace of mind with Timeero's automated, transparent tracking and cost-saving insights, while employees benefit from accurate and timely payments.
Check out this Timeero review to understand how this software can be the next best thing for your company.
FAQs
What Is the Current ATO Rate for Car Allowance?
The Australian Taxation Office (ATO) sets specific rates for car allowances to define the amount that can be claimed without incurring additional taxes. The ATO rate for 2024 is 85 cents per kilometer.
What Are the Criteria for Receiving a Car Allowance in Australia?
There are no strict criteria for receiving a car allowance in Australia. It's an employer-provided benefit, so it depends on their policies and your job requirements. Often, roles requiring frequent work-related travel or use of your own car are more likely to qualify for this payment.
How Is Car Allowance Calculated in Australia?
Calculating a car allowance involves factors like expected work mileage, the type of vehicle needed, and industry benchmarks. It's not a fixed amount and should consider both company needs and employee expenses.
Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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