Damon Mcknight
A car allowance is a sum of money that an employer provides to an employee who uses their own vehicle for work purposes. This allowance covers fuel, maintenance, insurance, and general wear and tear. Typically, the allowance is added to the employee's monthly salary and is subject to income tax. There is no official set amount for a car allowance in Australia, and it can vary depending on the job position, distance travelled, and employer rules. However, according to various sources, a typical car allowance in Australia ranges from AUD 15,000 to AUD 20,000 per year. A fair car allowance in Australia depends on the amount of business use of the vehicle and what the employer and employee agree on as fair.
| Characteristics | Values |
|---|---|
| Average car allowance in Australia | AUD 15,000 to AUD 20,000 per year |
| Car allowance range | AUD 10,000 to AUD 20,000 per year |
| Average cost of running a car in Australia | 88 cents per kilometre |
| Vehicle allowance for employees under the Electrical Award | $0.98 per kilometre |
| Travel time allowance for employees under the Electrical Award | $8.46 per day |
| Start and/or finish on-site allowance | $27.52 per day without free transport; $4.94 per day with free transport |
| Taxable income | Yes |
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What You'll Learn
Calculating a fair car allowance
There is no widely recognised average car allowance in Australia. However, there are a few factors that can help determine a fair car allowance.
Firstly, it's important to consider the purpose of a car allowance, which is to cover the costs incurred when using a personal vehicle for work purposes. These costs include fuel, maintenance, insurance, and general wear and tear. To calculate a fair allowance, employees should add up all their vehicle costs for a year, including insurance premiums, servicing fees, fuel per week, maintenance items, tolls for business use, cleaning fees, and financing costs.
Secondly, the extent of business usage relative to personal usage should be determined. For instance, if 60% of an employee's car use is for business purposes, it is reasonable to request that 60% of their yearly vehicle costs be covered by the allowance.
Thirdly, it is worth noting that car allowances are generally considered part of an employee's taxable income in Australia. However, there are tax advantages to be aware of. For example, the Australian Taxation Office (ATO) allows employees to claim a deduction for the business portion of their motor vehicle expenses using either the <'cents per kilometre' method or the 'logbook' method. The 'cents per kilometre' method uses a set rate for each kilometre travelled for business, while the 'logbook' method requires employees to maintain a logbook of business travel.
Additionally, it is important to consider industry-specific standards. For example, in the real estate industry, there are two types of allowances: a standing charge plus an amount per kilometre of use or an agreed-upon lump-sum weekly payment.
Finally, it is beneficial to utilise tools such as segmented tracking to gain valuable insights into employee travel patterns, which can help adjust car allowance policies to ensure fair distribution based on individual needs.
In conclusion, a fair car allowance in Australia should cover the costs incurred by employees when using their personal vehicles for work, taking into account factors such as business usage percentage, tax implications, industry standards, and actual usage patterns.
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Tax implications
In Australia, car allowances are considered taxable income and are taxed at the normal marginal rate. This means that employees will pay taxes on the allowance at their regular rate. However, there are ways to reduce this tax bill. If an employee uses their car for work, they can claim the business-related portion of their car expenses on their tax return, provided that they are not reimbursed for these expenses.
The Australian Taxation Office (ATO) sets a claimable 'cents per kilometre' rate each year, which can be used to determine a fair car allowance. This rate was 88 cents per kilometre in 2025. The cents per kilometre method can also be used to claim a tax deduction for the business portion of motor vehicle expenses. This method does not require written evidence of the exact number of kilometres travelled, but proof of how business kilometres were determined may be requested. It is considered best practice to keep a diary or logbook of business travel. The logbook method can also be used to claim a tax deduction for the business portion of motor vehicle expenses. A three-month logbook is valid for a four-year period.
Motor vehicle allowances that do not exceed the exempt component are not subject to payroll tax. Payroll tax only applies to the amount that exceeds the exempt component.
For employees under the Electrical Award, a vehicle allowance of $0.98 per kilometre is paid when they travel to a job more than 50 kilometres from their employer's workshop, depot, or registered office. A travel time allowance of $8.46 is also paid each day that they present themselves for work, including rostered days off. Apprentices are paid their apprentice percentage of this allowance.
A car allowance can be combined with a Novated Lease to maximise tax savings and remove the time and effort of receipt keeping.
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Industry-specific standards
There is no standard car allowance in Australia. The amount an employer offers varies depending on several factors, including industry standards. Some industries have typical car allowance ranges, while others have industry awards that outline a minimum amount. For example, a property sales consultant is entitled to a car allowance under the Real Estate Industry Award 2020. In this instance, the allowance is either a standing charge plus an amount per kilometre of use or an agreed lump sum per week.
Industry benchmarks are also considered when determining car allowance amounts. Roles requiring frequent work-related travel or the use of personal vehicles for work are more likely to qualify for higher allowances. Those in higher positions may also receive higher amounts compared to those in lower-ranked positions.
Additionally, the type of vehicle needed for the job can influence the allowance. Different vehicles have different expenses, such as fuel, maintenance, and financing costs. The expected work mileage and distance travelled also play a role in determining the allowance.
It's important to note that a car allowance is considered taxable income in Australia and is taxed at the normal marginal rates. Employees can claim tax deductions for work-related vehicle expenses using the cents per kilometre method or the logbook method.
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Company car vs. allowance
There is no official set amount for a car allowance in Australia. It is negotiated between the employee and the employer and outlined in the employment contract. The allowance is then added to the employee's regular pay and taxed as normal income. It is intended to cover the costs of using an employee's personal vehicle for work purposes, such as fuel, maintenance, insurance, and general wear and tear. The amount varies depending on the role, expected travel, and company policy.
A company car, on the other hand, is owned by the employer and provided to the employee for business and/or private use. The employer is responsible for all expenses incurred for the ownership of the vehicle, which can be claimed as tax deductions. The employee cannot then claim any expenses related to that vehicle. A company car may come with restrictions on personal use.
When deciding between a company car and a car allowance, it is important to consider your driving habits and lifestyle. A car allowance gives you the freedom to choose your vehicle, but you are responsible for handling insurance and maintenance. A company car is maintained by the employer but may have limitations on personal use.
The tax implications of a company car and a car allowance also differ. A company car may reduce an employee's taxable income as the costs of owning and running the vehicle are borne by the employer. With a car allowance, the employee is responsible for all running costs and may have a higher taxable income if a generous allowance is offered. Fringe Benefits Tax (FBT) is applied at a rate of 47% to any private use of a company car, which can increase costs for the employer.
In terms of determining a fair car allowance, it is important to calculate your vehicle costs for a year, including insurance, servicing, fuel, maintenance, tolls, cleaning fees, and financing costs. Then, consider how much you use your car for business versus personal use. For example, if 80% of your car use is for employment, you can argue that 80% of your yearly costs should be covered by the allowance.
Additionally, certain industries may have an Industry Award that outlines a fair and minimum amount for car allowances. For instance, the Real Estate Industry Award 2020 specifies a standing charge plus an amount per kilometre of use or an agreed-upon lump sum per week for property sales consultants.
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Record-keeping
Cents-per-kilometre Method
The cents-per-kilometre method is a straightforward way to calculate deductible expenses. It involves multiplying the total business kilometres travelled by a predetermined rate set by the ATO, which includes typical costs such as depreciation, registration, insurance, maintenance, repairs, and fuel. While this method does not require detailed record-keeping, it is important to maintain records that show how business kilometres were calculated. Mileage tracking apps can automate this process and reduce errors.
Logbook Method
The logbook method, on the other hand, requires more detailed record-keeping. Individuals must keep a logbook for a minimum of 12 weeks, recording work-related trips, odometer readings, and all expenditure on car-related items such as fuel, oil, servicing, and finance. This method provides more flexibility and is suitable for those who drive a lot for business. It is important to note that the ATO may require proof of these records, so keeping accurate and up-to-date documentation is essential.
Additional Considerations
Regardless of the method chosen, it is crucial to keep all original receipts of vehicle expenses. Additionally, determining the depreciation of the vehicle based on its value and lifespan using an accepted depreciation method is necessary. This information may be requested by the ATO, and keeping notes on how depreciation was calculated is advisable.
For those who receive a car allowance as part of their salary package, it is important to understand that this is considered taxable income. As such, individuals should keep records of their vehicle expenses to claim tax deductions for the business portion of their motor vehicle expenses. Combining a car allowance with a Novated Lease can simplify record-keeping and maximise tax savings.
In conclusion, fair car allowance record-keeping in Australia involves choosing the appropriate method (cents-per-kilometre or logbook), maintaining accurate and detailed records, and being prepared to provide evidence to support claims and deductions.
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Frequently asked questions
A car allowance is a sum of money an employer provides to an employee who uses their own vehicle for work purposes. This allowance covers fuel/charge for EVs, maintenance, insurance, and general wear and tear. Typically, the allowance is added to the employee’s monthly salary and is subject to income tax.
There is no official set amount for a car allowance in Australia. A fair car allowance depends on the amount you will be required to use your personal vehicle for work purposes. The Australia Taxation Office (ATO) set a claimable ‘cents per kilometre’ rate every year which is a great starting point. Generally, allowances range from AUD 10,000 to 20,000 a year, but they can vary depending on job position, distance travelled, and employer rules.
Calculate all of your vehicle costs for a year. This includes insurance premiums, servicing fees, fuel per week, maintenance items (oil, wiper fluid), tolls (business use only), cleaning fees (if you ferry clients) and financing costs. Then determine how much you might use your car for business vs personal use. For example, if 80% of your car use is for your employment, you can argue that 80% of your yearly costs should be your allowance.
