An employee’s award or agreement will specify the rate at which cents per kilometre should be paid. If an employee is not covered by an award or agreement, the employer should specify the rate, which may be outlined in a company policy.
Cents per kilometre should be configured in the payroll system under two separate codes: one that is exempt from PAYG and one that is not exempt. Under Single Touch Payroll (STP) Phase 2, the cents per kilometre allowance should be reported as allowance type CD and does not attract superannuation. This allowance must be included in the employee’s income statement as a separate total allowance.
The first 5,000 km at up to 85 cents per kilometre is exempt from PAYG. Employers should consult with their payroll system provider to monitor when an employee exceeds 5,000 kilometres, potentially through a reporting feature.
Example: Cents per Kilometre Allowance
Joan uses her personal car to transport stock to another store. She is covered under the General Retail award and travels 5,300 km in a financial year. The award states she is entitled to 95 cents per kilometre. Here’s how the allowance is processed:
– STP P2 CD – 5,000 km x 85 cents (exempt from PAYG)
– STP P2 CD – 5,000 km x 10 cents (taxed)
– STP P2 CD – 300 km x 95 cents (taxed)
The breakdown of Joan’s allowance is as follows:
– Total Allowance (exempt from PAYG): $4,250
– Tax-free Amount: $500
– Taxable Amount: $285
Summary
To ensure proper payroll compliance, check the rate specified in the award or agreement for cents per kilometre, configure your payroll system accordingly, and regularly monitor the kilometres travelled by employees to maintain accurate reporting and taxation.
For further guidance, consult with your payroll system provider or refer to the relevant award or agreement.
