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Manage payment of tax-free vehicle allowances for employees

Updated

In Australia, private motor vehicle allowances paid using the cents-per-kilometre method are tax-exempt up to a cap of 5,000 business kilometres per employee per financial year. Any kilometres paid over this 5,000km threshold are considered taxable income and are subject to regular PAYG withholding tax.

To help payroll managers track this threshold and avoid compliance errors, our platform includes an automated 5,000km Exceeded Pay Run Warning. This warning automatically flags any employee whose cumulative year-to-date (YTD) tax-free vehicle allowance payments have crossed or reached the 5,000km limit, providing complete visibility right before you finalise your pay run.

Getting started

Enable or disable the "5,000km exceeded" pay run warning

By default, the pay run warning “Employee exceeded 5000km in financial year” is enabled for all pay schedules, but business full-access users can toggle it on or off as needed.
To configure this setting:

  1. Log into your payroll platform.
  2. Click the Business menu.
  3. Click the Payroll Settings submenu.
  4. Under Pay Run Settings, click Pay Schedules.
  5. Click the specific pay schedule you wish to manage.
  6. Click the edit button (pencil icon) for Pay Run Warnings to open the configuration side panel.
  7. Find "Employee exceeded 5000km in financial year."
  8. You can:
    1. Tick the checkbox to enable the warning rule.
    2. Untick the checkbox to disable the warning rule.
  9. Click the Save button.

Set up a stopping condition if you use pay run automation

If you use Pay Run Automation to process your payroll automatically, you can set this threshold crossing as an automated safeguard to pause your pay run for manual intervention.

To set up a stopping condition:

  1. Log into your payroll platform.
  2. Click the Business menu.
  3. Click the Payroll Settings submenu.
  4. Under Pay Run Settings, click Pay Schedules.
  5. Click the specific pay schedule you wish to manage.
  6. Click the edit button (pencil icon) for Pay Run Automation to open the configuration pop-up.
  7. Click the Next button to go to Warnings & Notifications, which dictate when an automated run should stop.
  8. Tick the checkbox for "Employee exceeded 5000km in financial year" to list it as an active stopping condition. This warning is also enabled by default.
  9. Click the Next button until you get to the Summary page.
  10. Click the Complete button.

Automation behaviour:

  • Below Threshold: If all employees remain under the 5,000km threshold (or if the warning setting is globally disabled), your automated pay run will process and finalise as per your configured instructions.
  • Threshold Breached: If any employee crosses or has already crossed the 5,000km mark, the automation will stop and send a notification so that a payroll officer can manually convert any subsequent allowance overages into taxable pay categories and/or manually finalise the pay run.

Warning trigger conditions

The system automatically scans active pay runs and updates cumulative totals in real-time. The 5,000km warning will trigger for an employee when the following criteria are met:

  • The employee has earnings processed against a pay category where the Payment Summary Classification is set to ‘Allowance - cents per km’.
  • The pay category is configured as PAYG Exempt = True.
  • The employee's cumulative tax-free kilometre units (from previously finalised pay runs plus units inside the current unfinalised pay run) reach or exceed 5,000km for the current financial year.
  • Tax-free kilometre units are tracked via pay run earnings, which can be generated manually in the pay run or via importing timesheets into the pay run.

Please note that we track Award pay categories as well as business-configured pay categories that meet the above criteria.

How the warning appears in a pay run

When a pay run contains tax-free kilometre earnings for an employee whose cumulative amount has reached or exceeded the cap, an alert will populate within the Warnings tab.

  • The Warning Message: You will see an alert stating: "Review [X] employees: over 5,000km tax-free earnings paid this financial year".
  • Expanding Details: Clicking directly on the impacted employee's name expands their profile, allowing you to review their cumulative earnings line and specific pay parameters.
  • Dynamic YTD Tracking: The kilometre totals are calculated dynamically, combining historical data from finalised periods with active lines in the current open pay run. If you delete a tax-free kilometre allowance line from the current run, the warning will dynamically clear if the remaining YTD balance falls back below 5,000km.
  • Financial Year Reset: The tracking tool runs strictly per financial year based on the pay run's Date Paid. As soon as a pay run is paid in a new financial year, the employee's cumulative allowance total automatically resets to 0.
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