Withholding for allowances

Changes to award transport payment

From 1 October, award transport payments (which no longer exist as a distinct class of payments in the law) transition back into normal withholding.

For more information see Changes to award transport payments.

Overview of allowance types

The correct withholding treatments and reporting requirements for various allowance types are listed in the following tables.

You must follow the relevant withholding and reporting requirements to allow your employees to correctly complete their income tax return.

For reporting of allowances in Single Touch Payroll (STP), go to STP Phase 2 employer reporting guidelines.

Types of allowances and how they're treated

Table 1 lists types of allowances an employee might receive and describes how they are treated. You need to withhold for these allowances.

The employee is expected to incur expenses that may be claimed as a tax deduction at least equal to the amount of the allowance. The amount and nature of the allowance is shown separately in the accounting records of the employer.

Table 1 – Types of employee allowance
Allowance type	Examples	Include on payment summary?
Working conditions, qualifications or special duties	Crib, danger, dirt, height, site, shift or travelling time Trade, first aid certificate or safety officer	Yes (include total allowance in gross payment)
Non-deductible expenses	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	Yes (include total allowance in gross payment)
Deductible expenses	Tools Compulsory uniform or dry cleaning Motor vehicle for work-related travel, including cents per kilometre payments in excess of ATO rate Overseas accommodation for deductible travel	Yes (show total allowance separately in the allowance box with an explanation)
On-call allowance (ordinary hours)	n/a	Yes (include total allowance in gross payment)
On-call allowance (outside ordinary hours)	n/a	Yes (include total allowance in gross payment)

Allowances subject to a varied rate of withholding

Tables 2 to 6 list allowances that are subject to a varied rate of withholding.

Table 2 – Cents per kilometre car expense payments using the approved rate
Allowance type	Are you required to withhold?	Include on payment summary?
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled up to 5,000 business kilometres	No	Yes (show total allowance separately in the allowance box with an explanation).
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled in excess of 5,000 business kilometres	Yes (from payments for the excess over 5,000 kilometres)	Yes (show total allowance separately in the allowance box with an explanation)
Payments made at a rate above the approved rate for distances travelled up to 5,000 business kilometres	Yes (from the amount which relates to the excess over the approved rate)	Yes (show total allowance separately in the allowance box with an explanation)

Table 3– Award transport payments

Allowance type	Are you required to withhold?	Include on payment summary?
Award transport payments paid on or before 30 September 2026 that relate to deductible transport expenses	No	Yes (show total allowance separately in the allowance box with an explanation)
Award transport payments paid on or after 1 October 2026 that relate to deductible transport expenses	Yes (from total payment)	Yes (show total allowance separately in the allowance box with an explanation)
Award transport payments that are non-deductible transport expenses	Yes (from total payment)	Yes (include total allowance in gross payment)

See examples and more information about award transport payments.

Table 4 – Laundry (not dry cleaning) allowance for deductible clothing
Allowance type	Are you required to withhold?	Include on payment summary?
Up to the threshold amount	No	Yes (show total allowance separately in the allowance box with an explanation)
Over the threshold amount	Yes (from the excess over the threshold amount)	Yes (show total allowance separately in the allowance box with an explanation)

Work out costs you can claim for clothing, laundry and dry cleaning expenses.

Table 5 – Award overtime meal allowances
Allowance type	Are you required to withhold?	Include on payment summary?
Up to reasonable allowances amount	No	No
Over reasonable allowances amount (allowance must be paid under an industrial instrument in connection with overtime worked)	Yes (from the excess over reasonable allowances amount)	Yes (show total allowance separately in the allowance box with an explanation)

See examples and more information about overtime meal allowances.

Table 6 – Domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence
Allowance type	Are you required to withhold?	Include on payment summary?
Up to reasonable allowances amount	No	No
Over reasonable allowances amount	Yes (from the excess over reasonable allowances amount)	Yes (show total allowance separately in the allowance box with an explanation)
Overseas accommodation	Yes	Yes (show total allowance separately in the allowance box with an explanation)

Work out if the exception applies and what is covered in travel allowances.

Labour-hire workers who receive living-away-from-home allowance (LAFHA) can't access fringe benefits tax (FBT) concessions. LAFHA is considered ordinary income and withholding applies.

FBT rules exclude labour-hire arrangements from the concessions as the labour-hire firm is not the employer of the worker.

For more information and examples of allowances, see:

TD 2021/6 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2021-22 income year?
TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses?
TR 2020/1 Income tax: employees: deductions for work expenses
TR 98/5 Income tax: calculating and claiming a deduction for laundry expenses