Private ruling: Cents per kilometre payments
Published: October 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you required to withhold an amount from a cents per kilometre payment to your employees for business kilometres up to X? | A1: No. | Q2: Are you required to withhold an amount from a cents per kilometre payment to your employees for business kilometres over X? | A2: Yes.

Relevant facts and circumstances: You have employee staff who use their own cars for work related purposes. The staff submit a monthly report that shows how many business kilometres they have travelled. Your employees travel more than X business kilometres during the year. The rate paid to the employees is based on the car engine size. You use the Australian Taxation Office (ATO) rates.

Relevant legislative provisions: Taxation Administration Act 1953 Schedule 1, Division 12.

Reasons for decision: Summary: Taxation Ruling TR 92/15 discusses the difference between an allowance and a reimbursement. Paragraph 2 of TR 92/15 states: A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance. Paragraph 3 of TR 92/15 states: A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption. In your case, you pay your employees an amount when they use their vehicle for business travel. The cents per kilometre payment is paid at the ATO rates depending on the car engine size. The ATO cents per kilometre rate is based on an estimate of car expenses (for example, petrol, depreciation and registration) incurred per kilometre. The rate is not varied during the year when petrol prices change. The cents per kilometre payment is not an exact reimbursement of the employees' actual car expenses. Consequently the payment is regarded as an allowance and not a reimbursement. | Detailed Reasoning - Pay as you go (PAYG) withholding requirements: Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA) outlines the payments from which amounts must be withheld. Section 12-35 of Schedule 1 to the TAA states that an entity must withhold an amount from allowances it pays to an employee. Section 12-35 of Schedule 1 to the TAA 1953 is subject to three general exceptions listed in section 12-1 of Schedule 1 to the TAA 1953. One of the exceptions relates to expense payment benefits. Subsection 12-1(3) of Schedule 1 to the TAA 1953 provides that you can disregard withholding PAYG to a payment which a) is an expense payment benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986 ; and b) is not any of the following: i. an exempt benefit under section 22 of that Act (about reimbursement of car expenses on the basis of distance travelled); ii an expense payment benefit in relation to a contribution to a First Home Saver Account. As highlighted in Fringe benefits tax: a guide for employers (Chapter 9 at 9.9), reimbursement of car expenses on a rate per kilometre basis is not a fringe benefit, except in relation to remote area holiday transport and overseas employment holiday transport. This is the exception to the general rule that reimbursement for expense incurred by an employee gives rise to an expense payment fringe benefit. It follows that the PAYG withholding exception does not apply in your circumstances. Therefore the PAYG withholding provisions apply to the cents per kilometre payments. | Detailed Reasoning - Variation of rate of PAYG withholding: The Commissioner allows the PAYG withholding rate to be varied to nil in certain circumstances. There is no requirement to withhold an amount from allowances such as cents per kilometre car expense payments calculated using the approved rates up to 5,000 business kilometres. Such a variation is only allowed providing the payee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance and the amount and nature of the allowance is shown separately in the accounting records of the payer. (Please refer to the Commonwealth of Australia Gazette (No. S 343, 29 June 2000 for further details.) However, the above variation does not apply to cents per kilometre car expense payments using the ATO rates for payments made relating to business kilometres in excess of 5,000. This information is confirmed in the Withholding from allowances information sheet available on the ATO website www.ato.gov.au. Therefore you are required to withhold the relevant amount from the cents per kilometre car expense payments where the usage is in excess of 5,000 business kilometres. | Detailed Reasoning - Other information: Under section 16-155 of Schedule 1 to the TAA an employer must give a payment summary to employees where they have made a withholding payment to the employee. As the cents per kilometre payments are regarded as withholding payments, the total allowance amount paid to the employee should be shown on the payment summary. Car expense payments on a cents per kilometre basis are shown separately in the allowance box on the payment summary with an explanation, such as car allowance. That is, the allowance is not included in the gross payment amount on the payment summary, but shown separately. Such a payment is fully assessable to the employee.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Taxation Administration Act 1953 Schedule 1, Section 16-155 Reasons for decision