Travel allowances and PAYG withholding

What is travel allowance?

A travel allowance is a payment made to an employee to cover expenses that are:

• incurred when your employee travels away from their home in the course of their duties
• for accommodation, food, drink or incidental expenses related to the travel.

When a travel allowance is paid there may be a requirement to withhold an amount from the payment. The information in Withholding from allowances outlines the correct withholding treatment of allowances.

Reasonable travel allowance rate

Each year, we publish a determination setting out the amounts considered 'reasonable' for claims for domestic and overseas travel allowance expenses. These expenses include:

• accommodation
• meals
• deductible expenses which are incidental to travel.

Amounts are set out for various travel destinations in the following determination Taxation Determination TD 2012/17 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2012-13 income year?

The rates for domestic travel apply for stays in commercial establishments only, for example: hotels motels serviced apartments. If a different type of accommodation is used, the rates do not apply.

If the allowance is paid at the same rate or below the 'reasonable travel allowance' rate, and the allowance is separately accounted for, no withholding is necessary. In addition, the travel allowance does not need to be shown on an employee's payment summary.

If the allowance is paid above the reasonable travel allowance rate (in total), there is a requirement to withhold from the amount over the reasonable allowances amount. The total amount of the allowance should be included on an employee's payment summary in the allowance box with an explanation.

If the allowance is not fully expended

Where the allowance is paid to cover accommodation, meals and incidental expenses and you are aware that the allowance will not be spent on one or any of the items it is intended to cover, the allowance is not considered to be a 'bona fide travel allowance'. In these cases there is a requirement to withhold and record the amount on an employee's payment summary as part of gross earnings.

Where the deductible expense is less than the allowance received, the employee must show the allowance as assessable income in their tax return, and claim only the amount of the deductible expense incurred.

If the allowance is exceeded

If the cost of accommodation, meals and incidentals exceed the amount of travel allowance received, employees need to keep documentary evidence for those particular trips during the financial year. With these records, employees can either:

• claim the actual expenses incurred by including the amounts of travel allowance for which excessive expenditure is being claimed and claim a deduction for the corresponding expenses incurred in their income tax return
• claim nothing, as the travel allowance is not recorded on the payment summary there is no need to include the total amount as assessable income in their income tax return and, therefore, there is no need to claim a reciprocal deduction.

If the travel allowance is recorded on the payment summary, the employee will need to include the amount in their assessable income and claim either:

• the expenses they incurred (that can be substantiated with receipts or other documentation), or
• the amount from our published reasonable travel amounts.

More information For more information about PAYG withholding and travel allowances: refer to Pay as you go (PAYG) withholding - home Withholding from allowances Allowances, earnings, tips, directors fees etc Work-related travel expenses phone 13 28 66 (8.00am-6.00pm, Monday-Friday).