In Australia, company cars are generally seen as standard practice. However, instead of just offering an entire car to an employee, more and more companies are moving towards a car allowance system that frees up the choice of vehicle for the employees and removes the stress of having to maintain the car. For an employee, this can be a great benefit that goes beyond the usual limitations of a company car.
But how does it work, and what is the right way for an employee to handle it?
What is the allowance for?
Australian companies that offer an allowance use it as an alternative to company cars. This allowance doesn’t just cover the cost of having the car, but things like fuel, tyre replacements, insurance, registration, maintenance, and major repairs. The allowance is given to the employee like normal payday pay, although some companies may treat it as a separate account.
This money is then used to purchase, improve, maintain, and generally own the car, taking it out of the employer’s direct control. This means that the employee has the ability to choose whatever car they think is best and modify or repair it as needed, although they will have to use their own money for things beyond the scope of the allowance. This money can also be used to repair and upgrade an older car if the employee already owns one, rather than being exclusive to a new car.
It is up to the employee to decide how this money is used: they can decide if they want to spend it all straight away, save some for emergencies, or even keep all of the money in reserve and work with their own car.
How much does the allowance cover?
Standard employee car allowance rates can usually vary somewhere between $18,000 and $20,000 every year, although this varies even further depending on your role in the company, your salary, and how important the car actually is to your job. Somebody in a higher-paid role with a job that involves heavy use of their car may be able to get a larger car allowance as one of their employee benefits.
Remember that the allowance is per year, but it also doesn’t stop you from using your own money as well. If you already own your car, then you might prefer to save the allowance for emergencies and get non-essential upgrades or tweaks through your normal bank account.
How does it work with a new car?
There aren’t many limitations on how the allowance can be used as long as you aren’t directly misusing it. For example, as long as you are getting upgrades or improvements to your car that can directly or indirectly benefit you and your work, everything should be fine. Some companies might frown on using part of the allowance to get bigger speakers or features that are purely for recreational use, but they probably won’t stop it.
One of the main uses of this allowance is to help you afford a new car, either through a full purchase or a finance system. This means that you aren’t stuck having to pay for it with your normal bank account, and it can allow you to afford vehicles that you would otherwise have no chance of earning.
How does it work with an existing car?
Since the car allowance can be considered one of your employee benefits, you have almost full control over how the money is used. This means that your personal vehicle can also be upgraded, repaired, maintained, and generally improved through this allowance too: as long as you are using it on a vehicle that you use for work, there are very few downsides to having the allowance.
A novated lease is a salary arrangement that serves as the ‘ideal’ employee salary car allowance system for most employees. This is based on your actual salary and enables you to save on taxes that you would otherwise pay, but also covers operational and ownership costs of the vehicle. You also have the option of owning the vehicle once the lease ends, meaning that you aren’t stuck without a car if you end up changing positions or moving to a new company in the future.