• Travel allowances and PAYG withholding

    Travel allowance is a payment made to an employee to cover accommodation, food, drink or incidental expenses they incur when they travel away from their home or overnight in the course of their duties.

    When you pay an employee a travel allowance, you may be required to withhold an amount from the payment. Allowances folded into your employee's salary or wages are taxed as salary and wages and tax has to be withheld.

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    Paying travel allowances

    Unless the following exception applies, you're required to withhold tax from the travel allowance you pay your employee. You include the amount of the travel allowance in the allowance box on your employee's payment summary.

    The exception applies where:

    • you expect your employee to spend all of the travel allowance you pay them on accommodation, food, drink or incidental expenses
    • you show the amount and nature of the travel allowance separately in your accounting records
    • the travel allowance is not for overseas accommodation, and
    • the amount of travel allowance you pay your employee is less than, or equal to the reasonable travel allowance rate.

    If the exception applies, you're not required to withhold tax from the travel allowance you pay your employee. You don't include the amount of the travel allowance in the allowance box on your employee's payment summary. The allowance should only be included on their payslip.

    If the first two conditions listed above are met but you pay your employee a travel allowance over the reasonable travel allowance rate, you're required to withhold tax from the amount that exceeds the reasonable travel allowance rate. You also need to include the total amount of the travel allowance in the allowance box on your employee's payment summary.

    You are required to withhold tax from a travel allowance for overseas accommodation and include the amount of the travel allowance in the allowance box on your employee's payment summary.

    Reasonable travel allowance rate

    Each year we publish a determination setting out the amounts we consider reasonable for claims for domestic and overseas travel allowance expenses.

    Taxation Determination TD 2016/13 sets out the amounts for various travel destinations for the 2016–17 income year.

    See also:

    • TD 2016/13 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2016–17 income year?

    What you should tell your employee

    When a travel allowance is shown on your employee's payment summary, they must include the amount as income in their tax return and they can claim a deduction for the expenses they incur.

    When a travel allowance is not shown on your employee's payment summary and they:

    • spend all of the allowance on accommodation, food, drink and incidental expenses - there is nothing further for them to do. They are not required to include the allowance in their tax return and they cannot claim deductions for their expenses.
    • spend more than the amount of the allowance on accommodation, food, drink and incidental expenses, they can
      • choose not to include the allowance in their tax return and can't claim any deductions for their expenses
      • choose to claim deductions for the expenses they incurred, they must include the allowance as income in their tax return and claim a deduction for the actual amount they incur, not the reasonable travel allowance rate.
       

    Notes:

    • If your employee's travel expenses are reimbursed they can't claim a deduction.
    • If your employee intends to claim a deduction, they generally need to get and keep written evidence to substantiate their costs.

    See also:

      Last modified: 06 Dec 2016QC 18645