Car Allowance

[EvilDaifu]

Hey fellas, looking at a job offer that includes a Car Allowance but don't know much about them. Did a quick search but turned up nothing that helps with my question below.

Can someone who uses a car allowance as part of their pay package recently or right now let me know the ins and outs of using a Car Allowance please?

[Never had any say Panda]

Hey mate,

Previously I was on a car allowance as my job requires alot of travelling.. THis was a reimbursement paid at the rate of 76 cents per km we travelled in our own car.. We were responsible for all fuel/servicing/tyres and payments.. But we logged our km's fortnightly and got a lump sum added onto our pay..

After that was putting costs through the roof we were just given a company car + full personal use..

I should add that it was a pretty tidy little deal.. If I did 2000km's in a fortnight it was $1500 extra on top.. And 2000kms maybe cost me $300 in fuel..

Edited 31/01/13 06:29 AM by Slightly Depressed Panda

[spinr33]

Its my basic understanding a car allowance is an additional payment to or included in your salary for payment for use of your car for regular work purposes , this also means you carnt claim vehicle use on your tax etc they basically pay you a retainer for use and upkeep of your vehicle

[Boganspeed]

My experience with a car allowance is that you use that allowance to do a novated lease on a car to use for business purposes.

You can get a reps car like a corolla or get a mans car like xr6t.

Ute is best for tax purposes.

My FG2 6T ute is novated lease.

Best check with the company as to what they mean when they say "car allowance".

[ronburgundy]

Wrong on all counts guys.

An allowance is paid to you by your employer in acknowledgement that you need a car to do your job. You are ultimately free to spend that money however you please. You can spend more or less than the allowance on your car; say the allowance is 10k you could get a wonderful offering from Chery and pocket the difference. Or you could get a 5 series and make up the difference out of your own pocket. This is why employers like them as the choice becomes yours.

YOU PAY TAX ON THE ALLOWANCE. It is included in your taxable income and you pay tax on it depending on your tax rate.

Of course you then may be able to claim tax deductions for your vehicle expenses. There are a few methods such as a log book or cents per kilometre. Provided you keep appropriate records you can use the method which gives you the highest deduction. This then comes off your taxable income. Again this deduction can be more or less than the allowance itself.

Make sense?

Ron Burgundy

Friendly resident accountant

Sent from my GT-I9300 using Tapatalk 2

[wa g6et]

My car allowance was paid TAX FREE, you need to make sure you use the money to run your vehicle or you will be liable to pay tax on the unused portion at the end of the fiancial year. Of course you can novate a lease but depending on the KMs you do for the year it can end up costing you over the allowance due to the FBT liability

A lot of people where I worked use to make money on their allowance by using cheap cars or pass the cars on to family members after a few years.

I have done both but now have a provided fully maintained company car I can use privately. Given the choice the provided car is much easier in the end, with your own car you have to take care of all the servicing, insurance, accidents, loan cars etc. as well as justifying all the costs to the ATO.

However you do get the choice of vehicles(depending on any company policies ie carrying capacity, safety).

Do your homework, speak to your accountant, otherwise it could end up costing.

[Bulletime]

They've changed the novated lease tax rates, it's progressing yr on yr for new novated leases to be A flat rate 20%, means if you did more than 25k Kms it isn't as much a saving as before. Still can be worthwhile depending on your situation but yeah do your sums.

For example http://www.smartleasing.com.au/TaxSavings/Tax-Savings.aspx

[NickBA-XR6T]

There are pro's and cons when it comes to car allowances. I am a corporate accountant in a company which has a fleet of 33 company cars. The amount of administration involved regarding log books, FBT, servicing, accidents etc etc is painful. The on-costs (costs above the monthly lease commitment) can be astronomical. By the time you pay the monthly lease cost for the car (approx $530ish for a Corolla), Fuel, Insurance, FBT for private use et al plus the time for my team to maintain the records, giving someone an allowance seems like a great idea.

The issue is when the allowance greatly exceeds the running costs of the employees private vehicle, and this then effectively increases their taxable income, therefore possibly pushing them in to a higher income tax bracket. Also take into consideration the extra kilometers will do to your vehicle in terms of depreciation. If you can continually lease, use and sell vehicles and the allowance covers the cost then you will always be driving a relatively new vehicle and do quite well.

My advice would be to seek professional taxation advice from a qualified accountant, let him or her do the maths and advise you correctly on the best avenue for you.

[ronburgundy]

The FBT rates are moving up progressively but these are only for existing contracts (leases) that were in place prior to budget night 2011.

Any new lease entered into since then, or if you make a change (change balloon, refinance etc) to a pre-budget night lease, is at the flat 20% rate.

Employers also like an allowance because it takes all the admin away from them and all the risk; when you are on an allowance you get the freedom to choose your own car but then the risk in terms of proving it is tax deductible, maintaining log book etc falls on the employee.

As pointed out above there can be a significant admin burden in administering novated leases and in fact some companies do charge their staff an admin fee

Nick - yes it increases your taxable income but at the risk of stating the obvious, that's because you've pocketed the difference.

Despite what most people tend to think, you only pay tax on money you earn (less deductions of course), so it isn't as if you're being 'penalised' by having to go into a higher tax bracket. You have received an allowance which you haven't fully expended so naturally you should pay tax on that amount

[EvilDaifu]

Wow this is great fellas !!! Helps a lot. I have heard that if you are offered a car allowance - the company then expects all travel expenses that are normally expensed are taken out of the car allowance. For example - can't expense mileage if its work related like office to customer premises if in home town. Can't expense cab fares in home town if they are work related. I expense those today. With a car allowance I believe I would not be allowed to expense those. Airport transfers can be expensive - easily $100 each way !