The ATO has reminded tax practitioners that from 1 July 2015, car expense deductions for individuals were simplified.

Prior to 1 July 2015, there were four methods for claiming car expenses:

  • Cents per kilometre – capped at 5,000 kms
  • Logbook – unlimited kms
  • 12% original value
  • One- third of actual expenses.

To simplify the rules, from 1 July 2015, the government abolished the one-third of actual expenses method and 12% of original value method.

The cents per kilometre method (with the existing 5,000 km cap) and the logbook method (with unlimited kms) remain.

The cents per kilometre method has been simplified to use standard rate of 66 cents per kilometre for the 2015/16 income year, rather than a rate based on the engine size of the car. The Commissioner will set the rate for the future income years.

Employers should be aware that the ATO set the approved pay as you go withholding rate for cent per kilometre car allowances at 66 cents per kilometre from 1 July 2015.

Employers should withhold from any amount above 66 cents for all future payments of a car allowance.

Failure to do so may result in the employee having a tax liability when they lodge their tax return.

Employees, who from 1 July 2015 have been paid car allowance at a rate higher than the new approved amount, should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.

Ref: ATO website – Withholding tax for car allowances