Recent press coverage suggests the ATO may be concerned some employers may have overlooked changes to the cents per KM business travel rules.
Effective 1 July 2015 there is only one ATO approved cents per KM car rate – 66 cents per KM. This rate is applicable to all engine sizes.
The ATO is concerned employers may not have considered the implications of the required changes.
Despite the ATOs best efforts to notify employers of the changes it would not surprise us that some (maybe many) employers may have not fully considered the implications of the change.
It should be noted that an employer need not adopt the ATO approved rate but where the employer does not use the ATO approved rate it should be aware of the implications there-of.
The key issues to keep in mind where an employer pays a cents per KM allowance (for business travel) in excess of the ATO rate are:
When is Pay As You Go Withholding required?
Current ATO treatment (in the absence of a specific variation held by a payer) requires PAYG withholding where:
- If the KM rate is equal to or less than the ATO approved rate:
– Where business KMs are up to 5,000 business KMs – no withholding
– Where business KMs > 5,000 KMs – withholding from payments for the excess over 5,000 KMs - If the KM rate paid exceeds the ATO approved KM rate:
– Where business KMs do not exceed 5000kms per annum, withholding is required on the amount paid in excess of the amount otherwise payable using the approved rate;
and
– Where business KMs exceed 5000kms per annum, in addition to the above dot point, withholding is required on the full amount from payments for the excess over 5,000 KMs.
Employee income tax position
Employees should be aware of the implications for claiming income tax deductions and how such deductions need to be substantiated (ie use of a log book, keeping of expenditure receipts etc) where cents per KM allowances are paid by an employer in excess of ATO approved rates. This issue is particularly relevant where employers have previously paid at per KM rates approved by the ATO for larger engine sizes which have been impacted by the change to a single 66cent per KM rate.
State Tax Issues
State Pay-roll Tax (if applicable) and Workers Compensation schemes routinely provide an exemption from the definition of wages for amounts paid as allowances being cents per KM business travel for amounts paid at or below the prevailing ATO approved rate. Regard should be had to the specific rules in each jurisdiction to ensure no issues exist where the rate paid by the employer exceeds the new ATO approved rate.
Further details regarding the changes may be viewed at:
https://www.ato.gov.au/general/new-legislation/in-detail/direct-taxes/income-tax-for-individuals/car-expense-substantiation-methods-simplified/
The ATO rules regarding PAGW withholding from allowances are conveniently summarised at:
https://www.ato.gov.au/Business/PAYG-withholding/In-detail/Allowances,-leave-payments-and-repayments/Withholding-from-allowances/?page=1#Table_2
