Changes to Car Allowances
CHANGES TO CAR ALLOWANCES
Claiming work-related car expenses is a common tax-time claim for many taxpayers. In fact, almost 4 million taxpayers claim the deduction each year. There are of course certain rules that must be adhered to in claiming these expenses and these days, the Australian Tax Office takes a close interest in such claims given the cost to the revenue.
The Treasurer announced in the 2015-16 federal budget that the methods used for calculating work-related car expense deductions would be simplified and modernised – in other words, changed.
Currently, taxpayers have an option to use one of four methods to determine their work-related car expense deductions:
- cents per kilometre
- logbook method
- the 12% of original value method, and
- one-third of actual expenses incurred.
Changes to car allowances mean if you are paying your employees a car allowance in excess of 66c per kilometre, you need to withhold tax on the amount you pay over 66c.
If you haven’t been doing this since July 2015, you should begin to withhold tax on the amount you pay over 66c and advise your employees.
What if your employees think that not withholding until now might result in them getting a tax bill?
Depending on the amount you’ve paid them, this shouldn’t have a significant impact on their tax for the year. But you can agree to increase the amount you withhold for the remainder of the financial year to cover the shortfall.