What is an allowance?
An allowance is a separate amount your employer pays you in addition to your salary and wages. It's an estimate of costs you might incur for expenses, or compensation for certain conditions of your employment.
An allowance is different to a reimbursement. A reimbursement is an amount your employer pays you for the actual expenses you incur.
If your employer pays you:
- An amount based on an estimate of what you might spend, such as paying cents per kilometre if you use your car for work, then it's an allowance. In this instance, you may or may not spend the exact amount your employer pays you.
- For the actual amount of the expense (either before or after you incur the expense), such as paying for the petrol you use when you use your car for work, it's a reimbursement.
If you receive an allowance from the Australian Government, see Government payments and allowances.
Types of allowances
Your employer may pay you an allowance that provides:
- for expenses you have that are not deductible, such as meals and snacks during your normal working hours. Specific examples include
- part-day travel allowance
- meal allowance (that are not award overtime meal allowances)
- for certain work-related expenses, such as using your car to travel between workplaces or buying and laundering work-specific clothing. Specific examples include
- tool and equipment allowance
- motor vehicle or car allowance
- transport expenses allowance
- uniform allowance
- compensation for your working conditions or industry peculiarities, such as working at heights or in dangerous, hot or cold conditions. Specific examples include
- remote area allowance
- cold temperature allowance
- irregular working hours or broken shift allowance
- recognition of special duties, skills or qualifications, such as holding a first aid certification, leading a department or being on call. Specific examples include
- on-call allowance
- leading hand allowance
- health and safety representative allowance.
When to include an allowance as income
If your employer reports your allowance on your annual income statement, you must include it as income in your tax return.
Your employer may also pay you allowances that they only report on your payslip (not your annual income statement). This can occur when they pay you a travel allowance or certain overtime meal allowance. Special rules apply to these allowances, see Allowance on payslip not on annual income statement.
Allowances and claiming a deduction
There is no automatic deduction for receiving an allowance from your employer.
If you can claim a deduction, the amount you claim is the deductible work-related expenses you actually incur, which is usually not the same amount as the allowance you receive.
Allowance on income statement
Where the allowance is reported on your annual income statement, you:
- must include the allowance as income in your tax return
- can claim a deduction for the amount you spent on deductible work-related expenses covered by the allowance
- must keep records of your expenses (unless a record keeping exception applies).
Allowance on payslip not on annual income statement
Different rules apply to the following allowances if your employer has not reported them on your annual income statement:
- a travel allowance to cover expenses you may incur when you travel away from home to perform your employment duties
- An overtime meal allowance paid under an industrial law, award or enterprise agreement.
If your employer doesn't report the allowance on your annual income statement, and you:
- spent the whole allowance amount on deductible expenses, then you
- don't include it as income in your tax return
- can't claim any deductions for the expenses you incur
- spent more than your allowance amount on deductible expenses, then you can
- include the allowance as income in your tax return
- claim a deduction for the expenses you incur.
If you can claim a deduction, you must also keep records of your expenses, unless a record keeping exception applies.
Types of employment allowances, how and when to treat them as income, and how they affect claiming a deduction.