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14 July, 2022 - 2 min read

Is car expenses reimbursement taxed?

Depending on the reimbursement method, you might have to pay income tax on your car expenses reimbursement.

If you have questions about car allowance tax, car expenses reimbursement tax and more, read on to find out what rules apply to your situation.

If, as an employee, you are reimbursed by your company for business-related car expenses, you might have to pay income tax depending on the method the company uses. The two most common methods of reimbursing employees in Australia are:

  • a cents per km rate, or an actual expenses reimbursement
  • a car allowance lump sum.

You might receive car expenses reimbursement through one or both methods at the same time. The cents per kilometre rate serves to compensate you for the car expenses in connection to driving your car for work purposes, while the car allowance serves in place of being provided with a company car. Read more about what the two methods entail in our guide for employee reimbursement.

Depending on how your employer processes your car expenses claim, your reimbursement might be taxed.

Cents per km reimbursement tax

If your employer reimburses you only for the work-related expenses that you incurred (for example, fuel, parking, and road tolls), or if they use a standard cents per km rate based on your actual business kilometres driven, this reimbursement is tax-free.

However, keep in mind that if you are reimbursed at a higher rate than the official one ATO has issued, the excess will be taxed as income.

Car allowance tax

Is car allowance taxable? The short answer is yes. Car allowance is considered a benefit, and not reimbursement and should appear on your payslip every time you receive the allowance. Car allowance is always taxed as part of your income. Car allowance tax is calculated based on your income tax bracket and will be taxed the same percentage.

How do I know if my mileage reimbursement was taxed?

If your payment summary from your employer shows that tax was withheld, then your reimbursement was taxed. If the payment summary doesn’t withhold any tax, then your reimbursement was tax-free. If you are in doubt, you can always ask your employer or accountant for help. 

Can I still claim car expenses at tax time if I was reimbursed by my employer?

One important thing to remember - if you are reimbursed for your expenses and no tax was withheld, you can’t “double-dip” and also claim them as a tax deduction. This is because you have no longer paid the initial GST for those expenses - your employer has (by reimbursing you).

On the other hand, if your reimbursement had tax withheld, you can then claim those specific expenses as a deduction at tax time.

FAQ

If the car allowance you receive is only to cover your business-related driving expenses and does not exceed the ATO rate per km, it will not be taxed. If you receive a car allowance as a benefit, it will be taxed at your income tax rate.
If you are claiming car expenses by the cents per km method, you can claim up to 5000 km at the ATO year in a given year. If you use the logbook method to claim car expenses, you will be able to claim business-related driving expenses. Remember to keep your receipts in order to calculate your claim.
Car allowance is considered a benefit and is taxed as part of your income. If you receive a cents per km reimbursement for your business-related driving according to the ATO rules, your reimbursement will not be taxed.

How to automate your mileage logbook

Manually filling out your logbook can get tedious - see how to automatically track trips for your mileage reimbursement or deductions.

This material has been prepared for general informational purposes only, and should not be taken as professional advice from Driversnote. You should consider seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances. Relevant laws also change from time to time.