• Withholding for allowances

    The correct withholding treatments and payment summary requirements for various allowance types are listed in the tables below.

    Table 1 lists the various types of allowances that an employee might receive and describes how these allowances are treated.

    Table 2 lists those allowances which are subject to a varied rate of withholding.

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

    Table 1 – Allowances subject to PAYG withholding

    Allowance type

    Are you required to withhold?

    Is the allowance included on payment summary? If so, how should it be shown?

    Does super guarantee apply?

    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.

     

    Yes

     

    Yes (include total allowance in gross payment)

     

    Yes

    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.

     

    Yes

     

    Yes (include total allowance in gross payment)

     

    Yes

    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 
    • overseas accommodation for deductible travel.

     

    Yes

     

    Yes (show total allowance separately in the allowance box with an explanation)

     

    No

    On-call allowance

    • ordinary hours 

     Yes

     Yes (include total allowance in gross payment)

    Yes

    • outside ordinary hours

    Yes

    Yes (include total allowance in gross payment)

    No

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

    Allowance type

    Are you required to withhold?

    Is the allowance included on payment summary? If so, how should it be shown?

    Does super guarantee apply?

    Cents per kilometre car expense payments using the approved rate

    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 allowance box with an explanation)

    No

    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 kms)

    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).

    Award transport payments

    For deductible transport expenses

    No

    Yes (show total allowance separately in allowance box with an explanation)

    No

    For non-deductible transport expenses

    Yes (from total payment)

    Yes (include total allowance in gross payment)

    Yes

    Laundry (not dry cleaning) allowance for deductible clothing

    Up to the threshold amount

    No

    Yes (show total allowance separately in allowance box with an explanation)

    No

    Over the threshold amount

    Yes (from the excess over the threshold amount)

    Award overtime meal allowances

    Up to reasonable allowances amount

    No

    No

    No

    Over reasonable allowances amount

    The 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 allowance box with an explanation)

    Domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence

    Up to reasonable allowances amount

    No

    No

    No

    Over reasonable allowances amount

    Yes (from the excess over reasonable allowances amount)

    Yes (show total allowance separately in allowance box with an explanation)

    An allowance for overseas accommodation must be subject to PAYG Withholding and be shown in the allowance box on the Payment Summary

    Labour-hire workers who receive living-away-from-home-allowance (LAFHA) can't access 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.

    See also:

    Last modified: 05 Apr 2017QC 51680