Tax on a car allowance

[Bells]

Can anyone help with what one gets taxed on a car allowance? My hubbies package includes a basic salary and a $15 000 car allowance ......we know what the tax is on the basic but not the car allowance part.......we would like to work out what we will come out with at the end of each month.

Any help would be much appreciated!

Bells

[Dedrei]

In Australia, you don't get taxed on your fringe benefit. The company pays tax at a rate of 46.5% of the Tax value of the benefit. It does not get taxed in your hands at all.

[Bells]

that's pretty cool.....leaves more cash for cheesecake and coffee!!!! Txs D

[Dedrei]

You might have to find out how they are packaging his salary. Cause some employers package the 'cost' of the FBT into your salary package, best is to get more clarity on the package offered.

I am sure they won't mind you asking what the net pay would be per month.

[Bells]

Good idea...thanks!

We just didn't want to bother them too much.....typical South African, hey?? One just gets so grateful for the opportunity for employment that you don't wanna annoy them. Will get my hubby to mail them.

Cheers

[Guest Larry]

Just a correction on what Dedrei said:- In Australia, as a general rule, you are taxed on some fringe benefits, such as company cars and car allowances. There are some exceptions, such as some non-profit organisations, hospitals and charities which do not have to pay FBT. Check out with your husband's employer about whether this applies to them.

If you are subject to FBT, the amount is calculated based on the value of the car and the number of kilometres travelled annually. Again, as a general rule, if you travel more than 25,000 km per year, you won't pay much FBT. Some employers choose to let the employee pay the FBT and some elect to pay the FBT themselves. Your husband will have to try to negotiate the FBT payment with his employer.

A previous employer of mine gave me a car allowance. - But I had to pay the FBT. It wasn't much as I usually travel more than 25,000 km per year. My current employer gives me a company car. I am still liable for FBT, but my employer pays it all.

So suggest to your husband that he check with his employer and a taxation accountant.

[Mara]

I agree with Larry on this one!

[Bob]

The background to this "Fringe Benefits Tax" goes back to the late 1980s.

Lots of people, especially those on high incomes, were getting their companies to offer them "packages" such as company car, school fees, home loan repayments, medical benefits, overseas holiday each year, etc.

Their basic salary would therefore be relatively lower and "packaged" so that their annual income would be in a low tax margin and not paying much income tax, since lots of their living expenses were already being paid for by their company.

The Australian gov't was missing out on millions of tax dollars, so came up with the idea of Fringe Benefits Tax, whereby the company pays the tax that the worker would have been paying instead!

Nowadays, companies are loathe to offer any perks or fringe benefits, because the company knows that it will be the one paying the tax on it, not the worker.

Ginnie, my wife, is a part-time teacher in a country Lutheran school and has an obligation to attend at least two congregations in the Lutheran church that send kids to her school.

These may be little country churches with not many folk attending, but we go to these outlying congregations in the South Australian bush, not only for the great tucker that they put on for us afterwards, but for the tax relief also that she gets per kilometre in using her Ford Futura 6 cylinder car.

She has to drive many miles there and back (being in the bush) and can easily clock up 200 or 300 kms round trip to and from home to congregation.

The Australian gov't offers a generous tax allowance on car use and she claims around 60 cents each kilometre.

You can see that a round trip of 200 kms @ .60c = $120 off her taxable income of the year.

It can be quite tax advantageous if you know how to use your personal vehicle for use at work also.

[Dedrei]

So suggest to your husband that he check with his employer and a taxation accountant.

Ok let me explain this more from a Tax Accountant's perspective and to differenciate between Car Allowance & Fringe Benefits.

Travel Allowance gets taxed as part of your salary at normal rates. It gets treated as normal income. So this means that your employer will deduct normal PAYGW from your pay. When it comes to lodging your tax return you are able to claim car related expenses, provided you did travel for business purposes. So yes I did not read your post correctly, and thus rambled about something totally different.

Then on the other hand you have Fringe Benefits. Travel Allowance is NOT a fringe benefit as a company car would be. FBT is a tax payable by the EMPLOYER on an annual FBT return. BUT sometimes employers pass the buck - so to speak - and make the FBT part of your package. But this does not effect your PAYGW at all or your end of year tax as the EMPLOYER pays the FBT over to ATO.

Please have a look at the following

Allowances paid to Employees

Taxing of Allowances

Fringe Benefits - guide to employees

[Guest Larry]

Travel Allowance is NOT a fringe benefit as a company car would be. FBT is a tax payable by the EMPLOYER on an annual FBT return. BUT sometimes employers pass the buck - so to speak - and make the FBT part of your package. But this does not effect your PAYGW at all or your end of year tax as the EMPLOYER pays the FBT over to ATO.

Quite a few companies are now allowing you to "salary sacrifice" a portion of your salary (which might or might not include a motor car allowance) and allow the employee to take out a "novated lease" on a car. That way, all expenses related to the car (lease payments, licensing, insurance, petrol, oil, servicing, etc...) are all paid before tax. The costs involved in the novated lease become a fringe benefit. Somebody has to pay tax on it. The value of the fringe benefit (and the associated tax) is calculated in the same way as the fringe benefit in running a company car. ie by a combination of the value of the car and the kilometres travelled.

If you already own your car, you can still salary sacrifice all the running costs. This can be done via an "Associated Lease".

But again, I suggest chatting to a taxation expert to find out how to accomplish this.

[Guest Bronwyn]

Bells sorry if I rudely hijack your post for a few minutes, but it might also help others...

Hi Dedrei - I have read through your attachments but I'm afraid it's still as clear as mud to me. Can I ask a question?

I am probably starting a job soon which will involve driving to clients quite a bit during the day. It's unlikely I will do more than 25,000km's per year for business though, because we live in Adelaide and the distances aren't likely.

When we arrived in Aus we bought a used 2002 car for $20,000. Put half down and financed half. Hubby & I are sharing the car but when I start work he will need his own, or I will need a new one.

From a taxation point of view, I don't know whether to buy a 2nd car cash (a cheapie for him) and use the car we have for work, or buy myself something new to go with the new job. The HR people are muttering about leases. And special deals they have with Toyota. But they are not able to give tax advice, so just don't say anything

I don't know what to do, but I know we are going to need 2 cars within the next 2 weeks.

Any ideas? If you don't have I will try to find tax guru around here....

Thanks! Bronwyn

Edited February 22, 2007 by Bronwyn

[Dedrei]

Hi Bronwyn

Seems that Larry has bit more experience in this matter than I do. Only been in oz for 10 months, so still learning.

Sounds like they might be thinking of novated leases as Larry was talking about above.

The best thing is just to pop in at your local Tax Accountants and have a chat with them to get some more certainty regarding the matter. They will most likely ask how the employer is thinking of packaging your salary. If this is still open for discussion then see the accountant and then go back to the employer with your options.

Cheers

[Guest Larry]

I am just a "dumb engineer" and would hesitate to call myself a tax guru. But I have been through this whole company car / novated lease / car allowance thing myself.... Three times in the past two years!

The 25,000 km that I was referring to is total kilometres. - Business and private. VicRoads used GEMoney for their novated lease deals. Caloundra City Council use SPNT. I have private use of a council car (effective a company car) and so don't use SPNT myself.

If you want to see how novated leasing works, look here : Private Fleet.

[Bob]

Bronnie,

I think the "leases" referred to by the company you'd work for would be the usual 3 year leases on vehicles whereby you pay $x amount each week/ fortnight / month and that becomes a tax deduction from your gross income as a business expense, along with running costs (fuel, etc.)

Alternatively, you could buy a new or near new car and claim a "vehicle allowance" for the use of it. You keep a log book, putting all travel expenses in it (fuel, oil, parking fees, etc.) whilst going about the course of your work each day.

With the "Operating Cost" method, you keep the log book for a certain period of time ( usually at least 3 months) and put every trip down with mileage to determine how much is "business" travel and how much is "private" use.

Take into account the lease costs each month, or if you own the car, you can claim 12.5% depreciation of the cost of the vehicle each year + interest paid on the loan to buy the car (equal to the standard, variable home loan interest rate that you'd pay on a home loan), as well as any registration, insurance, fuel, oil services and repairs.

You can claim the per-centage of travel in the car that is used for business, so if you use (according to the log book) your car 60% of the time for business and your mileage is 20 000kms (for instance) throughout the year, of which 12 000 kms was used for business, then 60% of the operating costs can be used as a tax deduction against your income.

Another method, used if only making occasional work trips is to keep a log book and claim a "mileage allowance" of 62 cents, or so (depending on engine size) a kilometre.

Keep all receipts with regard to running the vehicle for tax purposes, as they may well need to scrutinise them to substantiate your claim.