What is a car allowance?

Car allowance is a company car scheme where an employer provides employees with monetary benefits instead of company cars. The car allowance is supplied on a monthly, quarterly or annual basis, and is meant to help employees purchase or lease a vehicle, or maintain one they already own.

The car allowance scheme provides employees with more freedom of choice over the vehicle they drive instead of having to use a company car provided by their workplace.

How does a car allowance work?

While your employer generally provides a car allowance towards purchasing a new car, you can also use the sum to maintain or improve your current vehicle.

Since the car allowance is a benefit and not a reimbursement for business-related expenses, you don’t need to provide proof of how you spend it. So, do with the money as you wish - buy or lease a vehicle, support repair and fuel costs of your current car, or spend it on other personal expenses.

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Is a car allowance taxable?

If you receive a car allowance, the amount is generally specified on your work contract and is paid out with your salary. Car allowance is considered a benefit, and is therefore taxed as part of your regular income.

Are you an employee looking for more rules on claiming car allowance in a specific country? See our dedicated guides below.

• Car allowance for employees in the U.S.
• Car allowance for employees in Australia
• Car allowance for employees in the UK
• Car allowance for employees in Canada

You can still receive reimbursement for your business-related driving

If you receive a car allowance, you can still have your work-related mileage reimbursed tax-free at the standard tax office rates. If your employer doesn’t additionally reimburse you for your business mileage, you can claim mileage deductions on your annual tax return.

Make sure to log your business-related driving to substantiate your reimbursement claim. The Driversnote mileage tracker app will record your trips automatically, and you can generate tax-compliant mileage reports with a single tap.

See for rules about reimbursements and claims for your business-related driving expenses:

• ATO mileage guide for Australia
• CRA mileage guide for Canada
• HMRC mileage guide for the United Kingdom
• IRS mileage guide for the United States

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