22 February, 2021

Mileage reimbursement for employees


As an employee in Australia, you might receive a car allowance from your employer for work-related car expenses, or you might be reimbursed by your employer for those expenses. If your employer does not offer either of those options, you may also be eligible to deduct your car expenses from your tax return each year. 

This guide is for those who want to know about mileage reimbursement for employees. We've written a separate guide for car expense tax deductions from the Australian Tax Office (ATO), as well as guides for business owners and the self-employed. We aim to provide an overview of:

  • What car expenses could I be reimbursed for?
  • Mileage reimbursement rules for employees;
  • What to expect from your employer;
  • How to track and log mileage; and
  • How to report at the end of the tax year.

Are there mileage reimbursement rules for employees?

While each employer has their own rules and restrictions around what exactly can be reimbursed or covered by a car allowance, the below is handy to keep in mind:

If you use your own car (including a leased or hired car under a hire-to-purchase agreement), you can claim all work-related travel expenses from your employer or in your tax return.

If you use someone else's vehicle (or a company car) for work purposes, you can be able to claim the actual expenses (such as fuel and parking) as a work-related travel expense from your employer or in your tax return.

If your travel was partly private, you can claim only the work-related portion.

In Australia, a car is defined as a motor vehicle (excluding motorcycles and similar vehicles) designed to carry a load less than one tonne and less than nine passengers. 

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Can I be reimbursed for my 4WD, motorcycle, or utility vehicle expenses?

While many four-wheel-drive vehicles are included in the definition above, the load limit of one tonne excludes many vans and utility vehicles/utes. You should check with your employer to see if they have any conditions around this.

As far as the Tax Office is concerned, work-related expenses for these types of vehicles as well as motorcycles can be deducted from your tax return through a D2 “Work-related travel expense” claim. Work-related expenses for cars (as defined above) are accounted for through the D1 “work-related car expense” claim.

When can I claim a car expense reimbursement?

You can generally claim reimbursement for your car expenses if you use your own car for your work. Fuel reimbursement is one of the things you may be eligible to claim as an employee. Some examples of work-related travel include:

  • Attending meetings or conferences away from your usual workplace
  • Collecting supplies or delivering items
  • Travel directly between two separate places of employment (for example, if you have a second job)
  • Travelling from your usual workplace or home to an alternative workplace (for example, a client’s office or worksite)
  • If your work can be classed as “itinerant work” – for example, if your job regularly requires you to work at more than one location each day before going home

Generally, travel from home to work is not claimable, but there are some limited exceptions. For a more detailed list, check out our guide to claiming a tax deduction for your car expenses. 

So, I am eligible for mileage reimbursement. Now what?

This will depend on if the vehicle belongs to you or someone else.

I own or lease the vehicle

If you own or lease the vehicle you drive for business, you have two common options (depending on which your employer prefers):

Your employer can use a mileage rate (for example, the ATO's cents per kilometre rate) for business travel instead of having you record all your expenses. This way, the only extra expenses you might need to record are things like parking costs and road tolls, rather than every cost associated with owning a car.

They could also provide a car allowance for your work-related expenses, covering things like fuel, cost of your lease, servicing, etc. This allowance would be paid to you as salary, with tax withheld accordingly. In Australia, you generally do not need to keep a record of what you do with your allowance, however, your car expenses remain eligible for a tax deduction, so record-keeping is essential for your tax return.

Your employer should tell you which records they need either way. If they use a cents per km mileage rate, they should let you know what the specific rate is. Please note, if they reimburse you at a higher rate than the Tax Office rate, you will need to declare the excess as income when filing your tax return at the end of the financial year.

For instance, the rate from July 1, 2020, is $0.72 per km. If your employer reimburses you $1.00 per km, the excess $0.28 per km needs to be declared as income.

Finally, unless your employer doesn't allow it, there's nothing to say you can't use multiple vehicles. 

The vehicle is provided by my employer

If you drive a vehicle owned by your employer, you may still be able to get reimbursed for the expenses of driving and operating the car — for instance, expenses for gas, parking, and road tolls. It is common for employees to get reimbursed based on the standard employee car allowance rates (the standard rate set by the ATO). 

You generally won’t be able to use a cents per km rate, as these account for the cost of owning a vehicle. Make sure you keep a record of all of your work-related expenses, as almost all employers will require receipts or invoices 

I’m also self-employed

As you are both self-employed and also an employee, you need to keep separate records for each. We’ve got you covered with our guide for self-employed that we linked to above, and you should also read the rest of this overview for employees.  Keep in mind that as a self-employed individual, you can claim deductions for any car expenses accrued while doing business. If you have a vehicle that you only use for your business, not only can you deduct your mileage, but all operating expenses for the car. 

Claiming travel expenses ATO - how much can I claim?

Keep in mind that you can't claim the entire allowance as a tax deduction. Only the total of your actual expenses can be claimed. For example, if you received $1700 in travel allowances from your employer during the year but only spent $1,000 on travel, you can only claim $1,000 in travel deductions on your tax return.

Only claim travel expenses for which you have proof, as the ATO may require proof for any of your expenses.

Work-related expenses - what records do I need to keep?

If you are claiming mileage reimbursement from your employer, they will advise you of their requirements - but in general, the things you’d want to keep a record of are your mileage, parking costs, tolls, and other expenses you incur during your work-related travel.

If you use the car for both private and business purposes, you’ll need to keep a record of the mileage that you drive for each, because you will only be able to claim the expenses incurred for work-related driving. 

Remember, the ATO requires you to keep receipts and anything else used to calculate a tax deduction for 5 years. While an employer may not require the same level of record-keeping, we do recommend following the ATO’s guidance, particularly if you think you will be claiming any car expenses as a deduction at tax time.

Is there a difference between a mileage reimbursement or car allowance arrangement?

There are many different ways of making sure employees are compensated for their transportation expenses. There are also different ways of structuring payouts. Let's have a look at the two most common arrangements:

Car allowance

A car allowance is paid upfront, typically every month, and the amount is set by your employer. 

Sometimes, your employer will give an allowance for parts of your expenses, such as lease payments on the car, and then reimburse other expenses after the fact. That's perfectly fine.

If you get a car allowance from your employer, it needs to be shown on your payment summary, as allowances are considered taxable income. 

Receiving a car allowance doesn’t necessarily mean that you won’t be able to claim relevant expenses from the ATO. If your work travel meets the ATO’s criteria for eligible work travel, you may still be able to use either the cents per km method or the logbook method to deduct your eligible expenses.

The administrative burden of paying an allowance and accounting for all expenses afterwards can be cumbersome for a company. Instead, many use a cents per kilometre or standard mileage rate. Under a cents per kilometre reimbursement arrangement, you are reimbursed at a specific rate for each kilometre you drive for business.

Mileage reimbursement - a cents per kilometre mileage rate

The simplest mileage reimbursement arrangement is to use a flat rate per kilometre driven. It is supposed to cover all the expenses of driving your personal car for business. That's what the ATO’s rate does; it is meant to cover both the costs of owning (fixed costs) and driving (variable costs) your vehicle.

There's a lot to be said for using a standard rate, chief among them that it's simple and avoids a fairly big administrative burden.

Be aware that your employer can set any rate they like - they do not have to use the ATO’s rate. For rates higher than the ATO’s standard mileage rate, the excess is taxed.

Also, remember that under the ATO’s cents per km method you can claim a maximum of 5,000 km per year. Check with your employer if they have set any limitations on their mileage reimbursement schemes for employees, as you may otherwise be better off to claim your mileage back as a tax deduction.

Is my mileage reimbursement taxed?

This depends on how your employer processes your claim. 

  1. If your employer provides an allowance for car expenses, this would be taxed as it would be shown on your payment summary and needs to be declared as income on your tax return.
  2. If your employer reimburses your specific car expenses and these are taxed on your payment summary, you can claim these as a deduction in your tax return.
  3. If your employer reimburses your specific car expenses and these are not taxed, you cannot claim these as a deduction as you have not paid any tax on those expenses.

How can I easily track my mileage for reimbursement?

There are no exact requirements for how you keep track of mileage. Your employer might require you to use a certain method or provide certain records, and they need to inform you of it. A lot of people have to choose for themselves.

Most people use an app to both track their trips and generate mileage reports for them. Depending on the app, it can even take away the pain of forgetting to record a trip. Driversnote is one such app, but there are several similar products in Australia, and we recommend you look for one that suits your purpose.

Other alternatives are spreadsheets, like Excel or Google Sheets, that you can share with your manager and/or accountants, but then you might need to take down odometer readings every trip to figure out your mileage accurately.

What is a fair car allowance in Australia?

For a fair car allowance in Australia, you can use the standard ATO rates for the current year. See the current ATO rates here

That's it for our guide on the basics of mileage reimbursement for employees in Australia. We hope we've been of assistance :)

Happy tracking! 

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.