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Cents per kilometre method and travel allowances

This blog is more of a reminder than anything about the new cents per kilometre (km) rate for employers and/or bookkeepers who process payroll . The ATO declared that from July 1 2015 the cents per km rate would be reduced to 66 cents. So, if you use the cents per km method to calculate employees’ travel allowances, you need to ensure that you are withholding the correct amount of PAYG tax from the allowance payment.

Man Traveler relaxing alone in Mountains Travel Lifestyle

Tell me how much needs to be withheld

  • Allowance payments at or below 66 cents per km and up to 5,000 kms travel ARE NOT TAXED
  • Allowance payments made in excess of 66 cents per km and less than 5,000 kms travel ARE TAXED
  • Allowance payments made in excess of 5,000 kms travel ARE TAXED

NB! This new rate is irrespective of vehicle engine size.

What if I haven’t been withholding the correct amount from employees’ allowances since July 1 2015?

If you missed the news that the cents per km rate was reduced to 66 cents and you have been withholding tax at a different/previous rate, you may have inadvertently caused your employees to incur a higher (or lower) income tax payable amount than should exist. You should seek advice from your accounting professional regarding what (if anything) can be done to amend this situation. Having said that, the ATO does provide the following advice regarding this issue.

What does the tax withholding calculation based on 66 cents per km look like?

Example of withholding for 2015/16

Allowance Award Rate = 78 cents per km
ATO Rate = 66 cents per km
Distance travelled = 4,000 km a year
4,000 x 0.66 = $2,640.00 not taxed at time of payment. (Shown in the allowance box on the payment summary)
4,000 x 0.12 (i.e. $0.78 less $0.66) = $480.00 taxed at the time of payment. (Shown in the allowance box on the payment summary)

(This example is taken from website Proactiv Payroll – special thanks to these guys)

What if I need more information?

If you have specific questions relating to your payroll and/or allowances, you should seek advice from your accounting professional first and foremost. You can also find further information from the ATO website here  Withholding from Allowances

UPDATE! FROM 1 JULY 2018, THE NEW RATE FOR WORK-RELATED CAR EXPENSES IS 68 CENTS PER KILOMETRE. SEE THIS LINK HERE. NOTE, THE CALCULATIONS PROVIDED ABOVE ARE STILL RELEVANT, HOWEVER, THE RATE NEEDS TO BE CHANGED TO 68 CENTS UP FROM 66 CENTS.