Mileage Reimbursement Rules For Employers
In this article
- So, do you have to reimburse your employees?
- How to reimburse employees for business car expenses
- Motor vehicle cents per km
- Car allowance in Australia
- Your business can claim a tax deduction for reimbursement of employee expenses
- Best practices for your car expenses reimbursement programme
- You need to record business travel accurately
- Can I reimburse all my employees the same way?
Are you looking to learn about reimbursing employees for the driving they do for your business? Then you have come to the right place.
In this article we will go over the different methods and rules you should be aware of.
One solution that can make your employee mileage reimbursement programme easier is Driversnote Teams, designed to automatically track business mileage and create ATO compliant reports with the touch of a button. But you can read more on that later.
So, do you have to reimburse your employees?
That depends. If your employees fall under a modern award or enterprise agreement the business would be required to pay out car expense reimbursements. Even if they don’t, it can be beneficial to your business to do so, as you’ll be able to claim the expenses as a tax deduction at the end of the financial year.
How to reimburse employees for business car expenses
There are two main methods for reimbursing employees in Australia, and the choice falls upon your business. Read on to see what the different methods entail and which would be better for your business.
The two most common car expense reimbursement methods are:
- Motor vehicle cents per kilometre
- Car allowance
Motor vehicle cents per km
Each year, the ATO sets a standard rate for deducting business-related car expenses from a tax return - the “cents per kilometre” rate. The rate covers all costs associated with driving one’s own car for business purposes, including ownership and operating costs. The rate represents the highest amount per km you can reimburse employees and still get a full tax deduction for your business.
The ATO has updated the cents per km rate for the 2023/2024 tax year to 85 cents. Find out more about the ATO cents per km rate for 2023/2024.
The same goes for your employees: If they are reimbursed at the standard cents per km rate, they do not pay tax off of the reimbursement. Other methods of covering employee car expenses may be treated as income and taxed.
As an employer, you are not bound by the motor vehicle cents per km rate. The one set by the ATO is advisory and you can choose to instead reimburse employees at a higher or lower than the ATO rate.
The motor vehicle cents per km reimbursement rate is normally paid out to employees after the fact, e.g. after employees submit last month’s log of the business trips they have taken.
Car allowance in Australia
Another common method in Australia is to pay out a car allowance. The allowance is often paid upfront, on a monthly basis. This method is used to replace the need for the business to provide company cars.
Employees can use the car allowance to lease or purchase a car if they don’t have one, or maintain their current vehicle. It is a great alternative to the cents per km method for ensuring employees have cash on hand for any car associated costs, such as lease payments or maintenance.
Car allowance in Australia is treated as income by the ATO and should appear on employees’ paychecks. The allowance is then taxed according to the employees’ income tax bracket.
Employees are still able to claim a tax deduction on their annual tax return for the business-related car expenses they’ve accrued throughout the year, using the cents per km or logbook method.
Your business can claim a tax deduction for reimbursement of employee expenses
If an employee is reimbursed for using their personal vehicle for work, your business can claim a deduction for any car allowances or reimbursements you pay.
If an employee is using a company car and they are also able to use that car for personal purposes, you might be asked to show how the reimbursed expenses are connected to your business, and you may need to pay a fringe benefits tax (which is also tax-deductible).
Best practices for your car expenses reimbursement programme
To keep things simple, many companies use an app for mileage tracking and most use the ATO’s standard cents per km rate. It saves time for employees who no longer have to manually keep mileage logs, and administratively it's the easiest solution. Using an app also helps your company avoid over-reported mileage claims, while making sure your employees get what they're entitled to.
Of course, the best mileage reimbursement programme is also compliant with ATO requirements. Read on to see what that means for you and your employees.
You need to record business travel accurately
Whether your business is set up as a sole trader, a joint partnership, or a company, it is crucial to accurately record work mileage - and to be able to keep it separate from any personal travel using the same car or cars.
Depending on which method you use to calculate your work-related car expenses, you will generally need to keep the following records:
- Details of the kilometres travelled for business and private use
- Any fuel, oil, repair, servicing, or insurance receipts
- Registration papers
- If relevant, any loan or lease documents
- Any relevant tax invoices
- Details of how you calculated your claim
This means that both you and your employees - at least, those who are being reimbursed for work-related car expenses - must keep records that are updated frequently to ensure their accuracy.
Can I reimburse all my employees the same way?
Not necessarily. If different employee roles are covered by different enterprise agreements or modern awards, the requirements may change. However, unless those agreements or awards require a higher rate of reimbursement, the ATO cents per km rate provides a standard method to reimburse work-related car expenses for all employees.
ATO Mileage Guide
- For Employers
- ATO Log Book Requirements
- Historic Cents Per KM Rates
- ATO Car Expenses Deductions
- For Self-Employed
- For Employees
- Claim Car Expenses In 5 Simple Steps
- Calculate Your Car Expenses Reimbursement
- Is Mileage Reimbursement Taxed?
- ATO Cents Per KM Rate 2021/2022
- ATO Cents Per KM Rates 2020/2021