For Australian workers who need to use their vehicles for work, understanding the benefits of car allowances can significantly help control work-related expenses. In 2025, car allowance schemes in Australia will continue to be a valuable benefit for employees who spend a lot of time on the road for business. But did you know combining a car allowance with a Novated Lease not only maximises the tax savings but removes all that time and effort with receipt keeping.
Car Allowance In Australia
According to the Australian Taxation Office (ATO), the average cost of running a car in Australia is around 88 cents per kilometre. Many businesses require employees to travel regularly, so car allowances help cover these costs while offering tax advantages.
This guide provides everything you need to know about car allowances in Australia. We’ll explain how they work, the key benefits, and how to assess whether this perk is right for you.
What Is a Car Allowance?
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. While convenient, it’s important to note that car allowances then require an employee to do all the work keeping records of all vehicle expenses to be able to claim on their own tax. Attaching the car allowance to a Novated Lease removes all the headache and will maximise you tax savings in every pay.
How Does Car Allowance Work in Australia?
Depending on your employer and the work you do, car allowances are a paid benefit to employees who require a vehicle for work purposes.
- Car Facilitation: The employer provides car entitlements at a fixed per pay value and all other forms of wage compensation.
- Deductible Income: This benefit is regarded as taxable. Hence, monitoring any expenses you want to claim back tax is important.
- Expenses: If the car allowance does not include certain expenses that the worker incurs during work travel, the individual may qualify for additional reimbursement for those expenses beyond work travel.
All of these can be time consuming and risk the ability to claim the maximum tax. A Novated Lease can solve all of this.
Key Benefits of Receiving a Car Allowance within a Novated Lease.
There are various benefits attached to a car allowance, especially for those employees who drive quite a bit during company hours. There are a few advantages as follows:
- Vehicle Choice: You can select your preferred vehicle and do not have to rely on a fleet vehicle that may not suit your personal needs.
- Tax Write-Offs: If your employer gives you an allowance for specific work-related expenditures, you are able to deduct these expenses as tax deductions..
- Less Difficult Management: Compared to running your own vehicle management, and record keeping, managing a car allowance is via a Novated Lease is simple and 100% tax effective.
Car Allowance vs. Company Car: Which is Better?
Consider your driving habits and lifestyle when deciding between a car allowance and a company car. A car allowance allows you to choose your vehicle but requires you to handle insurance and maintenance. Conversely, a company car is maintained by your employer but comes with restrictions on personal use. Assessing your travel needs and financial situation can help determine the best option. Check the Pre-Approval Novated Lease for more information.
How Much Should a Car Allowance Be in 2025?
Allowances for automobile usage in Australia vary depending on the job position, distance travelled, and employer rules. Generally, allowances range from $10,000 to $20,000 a year, but they can vary. Communicate with your employer to determine an allowance commensurate with your automobile expenses.
Frequently Asked Questions
What is the typical car allowance in Australia?
The car allowance in Australia is generally between $10,,000 and $20,000 per year, but it can vary depending on the job role and the requisite tasks.
Is the car allowance considered taxable income?
Your annual tax return will also have to incorporate this allowance since, in Australia, it is considered taxable income.
Can I claim additional deductions if my car allowance is insufficient?
If realistic motor vehicle expenditures go above the allowance set aside, it might be possible to consider some additional deductions, provided the travel was for work purposes.
Is it better to have a car allowance or a company car?
It all comes down to your tastes and the demands of your work travel. A car allowance is preferable since one can choose any car they like, while a company car entails the provision of the car but with limitations on its personal use.
Do I need to keep a logbook if I receive a car allowance?
Maintaining a logbook is very important for any individual who intends to claim extra deductions for work zone travel costs. A three month logbook lasts for a 4 year period. But you should always seek your own independent financial advise.
For more details and guidance on car allowance policies, visit Vehicle Solutions Australia or call us at 08 8338 4427
