The curious case of the kilometre allowance in 2018
Many of you know that an employee can deduct their motor vehicle business trips of a rate normally around $0.78 per kilometre. The awards will usually tell the employer to reimburse the employee for the business trips as well at a rate of $0.78 per kilometre.
The ATO made the decision that from 1 July 2018 that the new amount you can claim on your tax return using the cents per kilometre method is $0.68. However, the rates quoted in the awards still stand at $0.78 per kilometre as they have been previously.
So why is this important to payroll?
It comes down to how we treat the tax withheld on these items. Here is the ATO's guidance on how to deal with payments made in excess of their approved rate.
The ATO's guidance for payments made at a rate above the approved rate, for distances travelled up to 5,000 business kilometres:
Are you required to withhold?
Yes. From the amount which relates to the excess over the approved rate.
Is the allowance included on payment summary? If so, how should it be shown?
Yes (show total allowance separately in allowance box with an explanation).
Does super guarantee apply?
So basically we will have to withhold from $0.10 cents but not $0.68 cents. Sounds tricky? Probably... but not for KeyPay users. Let's take a look at how it will work.
How to set up the kilometre allowance in KeyPay
1. Go to business > payroll settings > pay categories. Create 2 pay categories that are 'fixed' as the pay category type. I called the first one 'Kilometre allowance up to ATO limit' and the second one 'Kilometre allowance above ATO limit'. Tick the box for both of them to say they are an allowance - this will make sure they pop up on the payment summary as an allowance. For the first pay category 'Kilometre allowance up to ATO limit' (in other words the $0.68 per kilometre bit) I checked the box 'PAYG Exempt' and 'Payroll Tax Exempt'. For the second pay category I leave this unchecked so that the $0.10 will be taxed.
Note that the super rate is -%, the type is 'fixed', the payment summary option is 'Allowance (Car)' and this is going to be exempt from PAYG.
The only difference here to the one above is that we choose to make this not exempt from PAYG and payroll tax (leave the box unchecked).
2. Our next job is to create a work type in business > payroll settings > work types so our employees can enter the number of kilometres in the 'create timesheet' screen. We don't want to confuse them with seperate work types so we are just going to create one work type called 'Kilometres travelled'. We will map this to the pay category we created above called 'Kilometre allowance up to ATO limit'.
Note we have mapped this work type to the 'up to ATO limit' allowance.
3. The final step is to create a rule. When the employee enters the number of kilometres travelled, we also want to pay them the 'above ATO rate' for each kilometre. Head to Business > Payroll Settings > Rule Sets. Click the green 'Add' button, give the rule set a name and click save. Click create rules and click add your first rule. If you have an existing rule set, you can add this rule to your rule set as well.
Give the rule a name 'kilometre allowance'. Our rule (shown below) will say when the work type 'kilometres allowance' is chosen, add 1 unit of an allowance called 'Kilometre allowance above ATO limit per unit on timesheet'. When you've finished, save the rule and 'activate draft rules'. Now go and assign this rule to each employee who needs it by going to the employee file > payrun defaults and selecting our new rule set.
Use this rule to add an additional allowance to the one already being paid on the timesheet[/caption]
4. Update the employees rates to assign $0.68 and $0.10 to our new pay categories respectively and click save (Employee's file > Pay rates). If you are using pay rate templates, update those as well.
How to find out how many kilometres I've paid so far this year
We have a convenient report called the 'pay categories' report which will show you how much we have paid out in kilometres so far this year, which may assist you in determining how to treat the kilometre allowance. Go to reports > Pay Categories Report. Choose 'financial year' as the date range and in the 'pay category' box choose one of our pay categories (so that we do not double count'. Click 'Run Report' and you'll see a nice snapshot of the kilometres travelled for an employee (shown under the 'units' column).
Now we are ready to go. When your employee enters the kilometres travelled on their timesheet, they'll end up with 2 allowances, and our tax withholding will be perfect and compliant.
2 allowances will show in the pay run and they will treat the PAYG differently.
We hope you spend your extra fuel money wisely!