What is a Car Allowance and How Can You Maximise it?

Having a job that offers you a car allowance is often highly desirable. For jobs that require you to use your vehicle a lot, car allowances are an excellent way for employers to help their staff to buy a vehicle or operate their existing cars.

Are you entitled to a car allowance at work? If so, it’s great news. But you’ll want to make sure you understand exactly what a car allowance is before you set about buying a new, or operating your current car for business purposes.

You’ll also want to figure out how you can maximise your car allowance and really get the most from it that you can. Find out how you can make the most of your car allowance with the right car loan.

What is a car allowance?

Car allowances are a form of additional income which is provided to you by your employer with the purpose of covering the costs of buying or operating a car for business purposes.

Car allowances are usually given to help cover the costs of using your existing car or a new car for business purposes. This includes things like additional wear and tear as well as extra driving and fuel.

Generally, car allowances should cover the car itself (if you are buying one new), as well as fuel, maintenance and repairs, insurance, and any registration costs involved.

If you do not spend the entirety of your car allowance, the extra money is still yours to spend or save.

So is a car allowance basically a novated lease?

No, this is a common misconception and it’s important to understand the difference.

• Novated Leases: this is a legally binding agreement between you, your employer, and a finance company to buy a car.
• Car Allowances: this is simply money given to you to offset any costs that you take on through using your own car for business purposes.

How can you maximise your car allowance?

Firstly it’s really important to consider whether you need a new car. Think about what your business purposes involved with the car – will you be driving clients? Does the car need to make a good impression or is it simply to get you from A to B?

Considering your car

Consider whether your existing car (if you have one) is appropriate for the job and if so, use it. Otherwise, consider buying a new car but try to keep the costs low.

Expensive cars are often expensive to run, especially when it comes to servicing. The less you spend on your car allowance, the more you’ll have for yourself.

Getting a chattel mortgage

Chattel mortgages are an excellent option for people who will use their vehicle over 50 per cent of the time for business purposes.

A Chattel Mortgage is a business finance product that enables you to own the vehicle at the time of purchasing it. Your lender will take a mortgage over the vehicle – this acts as security for the loan. When the payments are complete, the mortgage is removed and you will own the car.

Understanding tax deductions

Too many people think that receiving a car allowance will help to save tax. Unfortunately, a car allowance is not automatically treated as tax-free income. In fact, the entire allowance is treated as taxable income. You must declare the full amount of your car allowance when submitting your tax return.

It’s possible that you could claim some of the costs related to the operation of your car. It’s always best to speak with a tax expert and consider ATO guidelines on this.

Chattel mortgages and car allowances

Getting a chattel mortgage with a car allowance is one of the most popular ways to maximise the money you receive from your employer when you use your car for business purposes.

You should always check the terms and fees of any loan; especially in relation to circumstances such as early termination of the loan.

Always seek expert advice from lenders who have experience in helping those with car allowances to use them in getting a chattel mortgage.

Positive Lending Solutions has over 35 years of experience and access to a wide range of lenders, so we can save you time and money by finding the best car loan options for you.