Car Allowance Guide For Employees In Australia

How a car allowance for employees works

Many employers offer a car allowance in Australia as part of the salary package offered to employees who need to use their car as part of their job. A car allowance is an additional payment to specifically cover motor vehicle expenses.

The advantage to the employer over offering a company car is that there is no fringe benefits tax (FBT) applicable and all running and maintenance costs for the vehicle are the responsibility of the employee rather than the employer.

A car allowance in your salary package is considered a part of your taxable income and is taxed at the normal marginal rates. You can, however, claim the business portion of the usage of your car allowance from the ATO using either the cents per kilometre method or the logbook method.

For more information information about claiming a deduction for your business kilometres in Australia see our comprehensive guide on ATO rules for work-related kilometres claim.

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How you can use your car allowance

You can use your car allowance for any purpose related to owning and running a vehicle, including purchasing a vehicle, either outright or towards payments on a loan or lease, fuel, registration and maintenance costs. It is at your discretion how you use the car allowance from your employer. However, to be able to claim your car expenses from the ATO as a deduction, you would need to show that the usage was work-related, such as:

Travelling to a client meeting that was not held at your office;
Working onsite at a client’s premises that is not your regular workplace; or
Travelling to a conference or trade show.

Find out how to keep a compliant log book for tax.

Receiving reimbursement for business driving while getting a car allowance

Because a car allowance in Australia is paid by the employer as part of the salary package, there is no specific reimbursement paid to employees as they have already received the money to cover car-related expenses.

If there were a specific expense that lay outside normal usage of the car allowance from your employer, then you could discuss it with them about being reimbursed. An example of an additional expense could be expensive parking fees for visiting a client in a central business district location.

FAQ

How do you calculate car allowance for an employee?

A car allowance has two main purposes; to cover the costs an employee incurs when using their car for work, and to attract and reward them. Doing the calculations of actual costs is a good first step, but ultimately, car allowance negotiations are best understood if you compare it to salary negotiations.

What is a fair car allowance in Australia?

A fair car allowance in Australia depends on the amount you will be required to use your personal vehicle for work purposes. If you use your car a lot in your job, it will be higher than if you only need to use it occasionally. However, many employers now offer a car allowance as part of a salary package as an incentive to prospective employees.

How much is a typical car allowance?

According to various sources, a typical car allowance in a salary package in Australia is in the range of $18,000 - $20,000. Of course, the amount of your car allowance from your employer is dependent on your overall salary and may vary significantly. You should negotiate with your employer for a suitable car allowance.

How is car allowance taxed?

A car allowance is considered by the ATO to be a part of your taxable income and so is taxed at the normal marginal rate. You can, however, offset this by claiming a tax deduction for the business portion of your motor vehicle expenses using either the cents per kilometre method or the logbook method.