Withholding from allowances
Withholding from allowances
Allowances are separately identified payments made to an employee for:
- working conditions - for example, danger, height or dirt
- qualifications or special duties - for example, first aid certificate or safety officer
- expenses that cannot be claimed as a tax deduction by the employee - for example, normal travel between home and work
- work related expenses that may be able to be claimed as a tax deduction by the employee - for example, travel between work sites.
Allowances that have been folded-in to normal salary or wages - for example, overtime meal allowances are not treated separately for tax purposes.
What are the differences between allowances and reimbursements?
Allowances are amounts paid to cover anticipated costs or as compensation for conditions of employment, and are paid regardless of whether the employee incurs an expense. Allowances are assessable income to the employee and are generally included as income in their tax return. The employee may be entitled to claim a deduction. Reimbursements made to employees are exact compensation for actual expenses incurred, and the employer may be subject to fringe benefits tax (FBT). If the reimbursement is covered by FBT, the amount is not assessable income to the employee, and the employee cannot claim a deduction.
Super guarantee contributions are payable on an employee's ordinary time earnings. Most allowances are included in ordinary time earnings.
However, expense allowances and reimbursements are not 'salary or wages' and therefore are not ordinary time earnings.
Expense allowances are those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money on tax deductible items, in the course of providing services,
Similarly, a reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not salary or wages.
Also excluded from ordinary time earnings are 'on call' allowances paid when employees are required to make themselves available during hours that they are not otherwise working. On call allowances paid for ordinary hours of work, such as an on call loading, are ordinary time earnings.
The correct withholding treatment for allowances is listed in the tables below.
Table 1 lists the various types of allowances that an employee might receive and describes how these allowances must be treated.
Table 2 lists those allowances which are subject to a varied rate of withholding and explains how they are reported on the payment summary.
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You must follow the withholding and reporting requirements as outlined in the tables below to allow your employees to correctly complete their income tax return.
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Table 1
Allowances subject to PAYG withholding
Allowance type
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Are you required to withhold from allowances?
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Is the allowance to be included on payment summary? If so, how should it be shown?
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Does super guarantee apply?
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Allowances paid for working conditions, qualifications or special duties
For example:
- crib, danger, dirt, height, site, shift or travelling time
- trade, first aid certificate or safety officer.
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Yes
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Yes (include total allowance in gross payment)
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Yes
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Allowances for non-deductible expenses
For example:
- part-day travel (no overnight absence from employee's ordinary place of residence)
- meals (not award overtime meal allowance or overnight travel allowance)
- motor vehicle for non-deductible travel - for example, home to work, including cents per kilometre payments.
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Yes
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Yes (include total allowance in gross payment)
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Yes
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Allowances for expected deductible expenses
For example:
- tools
- compulsory uniform or dry cleaning
- motor vehicle for work- related travel, including cents per kilometre payments in excess of Australian Tax Office (ATO) rate (1)
- overseas accommodation for deductible travel.
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Yes
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Yes (show total allowance separately in the allowance box with an explanation)
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No
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On-call allowance
- ordinary hours
- outside ordinary hours
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Yes
Yes
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Yes
Yes
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Yes
No
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Table 2
Allowances which are subject to a varied rate of withholding:
- provided the employee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance, and
- provided the amount and nature of the allowance is shown separately in the accounting records of the employer.
Allowance type
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Are you required to withhold from allowances?
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Is the allowance to be included on payment summary? If so, how is it to be shown?
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Does super guarantee apply?
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Cents per kilometre car expense payments using the approved rates (1)
For payments made by applying the approved rate to the number of kilometres travelled where the usage is up to 5,000 business kilometres.
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No
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Yes (show total allowance separately in allowance box with an explanation)
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No
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For payments made by applying the approved rate to the number of kilometres travelled where the usage is in excess of 5,000 business kilometres.
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Yes (from the payment for the excess over 5,000 kms)
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Yes (show total allowance separately in allowance box with an explanation)
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No
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Award transport payments (2)
For deductible transport expenses
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No
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Yes (show total allowance separately in allowance box with an explanation)
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No
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For non-deductible transport expenses
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Yes (from total payment)
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Yes (include total allowance in gross payment)
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Yes
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Laundry (not dry cleaning) allowance for deductible clothing (3)
Up to the threshold amount
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No
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Yes (show total allowance separately in allowance box with an explanation)
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No
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Over the threshold amount
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Yes (from the excess over the threshold amount)
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Yes (show total allowance separately in allowance box with an explanation)
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No
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Award overtime meal allowances (4)
Up to reasonable allowances amount
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No
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No
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No
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Over reasonable allowances amount
The allowance must be paid under an industrial instrument in connection with overtime worked
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Yes (from the excess over reasonable allowances amount)
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Yes (show total allowance separately in allowance box with an explanation)
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No
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Domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence (4)
Up to reasonable allowances amount
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No
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No
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No
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Over reasonable allowances amount
An allowance for overseas accommodation must be subject to PAYG Withholding and be shown in the allowance box on the Payment Summary
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Yes (from the excess over reasonable allowances amount)
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Yes (show total allowance separately in allowance box with an explanation)
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No
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- The approved rate is a rate which is less than or equal to the ATO rate plus 1.5 cents and varies depending on the engine capacity of the vehicle.
- An award transport payment is a transport payment covering particular travel that was paid under an industrial instrument (that is, an award, order, determination or industrial agreement) that was in force under Australian law on 29 October 1986.
- The current threshold amount for laundry expenses is $150. Dry cleaning allowances should have an amount withheld in accordance with Table 1.
- Each year we publish a determination setting out the reasonable amounts for
- overtime meal allowance expenses
- domestic travel allowance expenses
- travel allowance expenses for employee truck drivers
- overseas travel allowance expenses.
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More information
For more information about allowances refer to:
You can also phone us on 13 28 66 (8.00am - 6.00pm, Monday - Friday).
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Last Modified: Thursday, 28 March 2013
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