If you have to use your vehicle for your job, you might be able to negotiate a car allowance and easy finance cars with your boss. Read on to find out our tips to maximize your allowance in Australia.
What is a car allowance?
An employer can help their employee(s) cover their vehicle's running costs by providing them with a designated car allowance and car loans for pensioners. This is money that, in many cases, can be used to pay for fuel and repairs.
A car allowance is also something to consider if you're a young professional. It helps you buy your first vehicle and is an alternative option to having a leased company car.
Tip 1: If you are using your vehicle for work, you must ask for a car allowance from your employer.
How does it work?
If you get a vehicle allowance, it is usually paid into your bank account along with your regular pay. The purpose of the allowance is to offset some of your work-related vehicle expenses, but you can use your money how you want. The amount of money representing the allowance will be noted separately from your salary/wages on the payslip you receive from your employer. It will also appear separately on a payment summary that goes to the Australian Taxation Office at the end of the year.
Car allowance in Australia
Anything your company gives you above and beyond your normal salary is derived from your taxable income in Australia. Your employer will put the amount of these add-ons on your payment summary, so you'll have to pay tax on this additional income. However, the good news is these additions will usually fall under the category of a car expense. We'll be discussing how to calculate them below in this article!
Tip 2: Maximize the tax deductions to reduce tax-liability
If you're regularly getting a vehicle/car allowance from your employer, then terms and conditions for allowance policy includes: Eligibility requirements, received amounts, and kms.
Does a car allowance have to be spent on a car?
You are not required to use your allowance for specific purposes, which we tell you, depending on how old you are. Therefore, the choice is yours, and the only requirement is that you ensure that your vehicle is well maintained, parked in a legal spot near your house or school and that you have enough money to fuel it before you go anywhere. If you want to buy a car but don't have the cash to afford one, then you may be able to use your savings for a down payment. For example, to help pay back vehicle loans.
Is a car allowance tax deductible?
It all depends on how you look at it; the allowance amount is not tax-deductible (it's income), but you can claim work-related vehicle expenses as a deduction against your income. When you do this, you reduce the tax you pay. The total of your work-related car expenses could be more or less than your allowance income. It depends on the allowance amount and how much you use your vehicle for work.
Using car allowance for the loan repayments
A car allowance is a handy tool for self-employed individuals. A chattel mortgage is a popular financing option for cars, with at least 51% for business purposes. It's becoming more and more common for professionals to use chattel mortgages as they are secured loans, meaning the car serves as collateral. Pay As You Go (PAYG) employees who drive their cars occasionally or regularly for work can use an allowance to help them pay off their chattel mortgage if they meet eligibility requirements. This can also help to build up tax deductions if you do so.