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Did you know: Your employee's travel allowance could land him with a hefty tax bill

by , 10 September 2014
If you give your employee a fringe benefit for the purpose of doing his job, he won't pay fringe benefit tax on it. An example of this is his travel allowance. It's a benefit that helps him do his job by covering his travel expenses.

But this doesn't means his travel allowance will always be a tax-free benefit. If he's not careful, he could end up paying a lot of fringe benefit tax without even realising it.

Let me explain...

 

Here's when your employee will pay fringe benefit tax

 
If you give your employee a cheap or free product or service, he must pay fringe benefit tax on it. But this is generally if he uses that company benefit for his private use. 
 
That's why, if you give your employee a company car he'll pay tax on his private use of the car.
 
But how does this rule apply to his travel allowance?
 
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Here's how this rules applies to your employee's travel allowance

 
You give your employee the travel allowance for the point of helping him do his job. If he uses that travel allowance money for private travel, he's using your money to buy fuel for his travels. 
 
That means this money is a taxable fringe benefit as it's free fuel. 
 
To work out how much tax your employee will pay, you must look at how many litres per kilometre your employee's car uses. 
 
Then look at how many kilometres he drove and how many of them were private travel. Take his private kilometres and multiply them by the cost of fuel per litre. That amount is what your employee will pay fringe benefit tax on.
 
Now that you know, ensure you withhold your employee's tax correctly for this money. 
 


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