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Edited version of your private ruling
Authorisation number: 1012567227616
Ruling
Subject: allowance versus reimbursement
Questions
1. Do you have an obligation to withhold amounts under Division 12 of Schedule 1 to the Tax Administration Act 1953 (TAA) in relation to a reimbursement of employee expenses?
Answer: No however you will need to consider if any fringe benefits tax obligations arise
2. Do you have an obligation to withhold amounts under Division 12 of Schedule 1 to the Tax Administration Act 1953 (TAA) in relation to bona fide allowances paid to employees?
Answer: Yes
3. Do you have an obligation to withhold amounts under Division 12 of Schedule 1 to the TAA in relation to a Daily Travel Allowance paid to employees for domestic travel or overseas food, drink and incidentals?
Answer: No, provided any such payment meets the relevant conditions set out in Taxation Ruling TR 2004/6.and TD 2013/16 (and subsequent relevant determinations).
4. Do you have an obligation to withhold amounts under Division 12 of Schedule 1 to the TAA in relation to a Daily Travel Allowance paid to employees for overseas accommodation expenses?
Answer: Yes
This ruling applies for the following period
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commenced on
1 January 2013
Relevant facts
You pay various types of allowances and reimbursements to your employees in relation to expenses they incur.
Legislative references
Income Tax Assessment Act 1997 Section 6-5
Tax Administration Act 1953 Section 12-45
Tax Administration Act 1953 Subsection 12-1(3)
Tax Administration Act 1953 Section 12-35
Tax Administration Act 1953 Section 23L
Fringe Benefits Tax Assessment Act 1986 Subsection 20(1)
Reasons for decision
5. Section 12-45 in Schedule 1 of the Tax Administration Act 1953 (TAA) provides that an entity must withhold from an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.
Allowance versus Reimbursement
6. Taxation Ruling 92/15 (Income tax and fringe benefits tax: the difference between an allowance and a reimbursement), explains the difference between an allowance and a reimbursement:
a. Most allowances will fall for consideration as assessable income under 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
b. On the other hand, most reimbursements will fall for consideration as an expense payment benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA).
c. An allowance is a predetermined amount which is paid to cover an estimated expense and paid regardless of whether the recipient actually expends the amount received.
d. A reimbursement occurs when the recipient is compensated for the exact amount of expenditure.
e. An upper limit may be established for the amount of reimbursement, resulting in only a partial reimbursement.
f. A payment of a reimbursement is the payment of a variable sum dependant on a precise accounting of the actual expenditure.
g. The reimbursement may be paid in advance of the expenses being incurred.
h. A requirement the recipient vouches or substantiates expenses referable to the payment lends weight to a presumption the payment is a reimbursement.
i. A requirement the recipient refunds or returns an overpayment or unexpended amount of the payment to the payer lends weight to the presumption the payment is a reimbursement.
7. Such reimbursements constitute expense payment fringe benefits. The payment of an expense payment fringe benefit is not an assessable amount for the recipient and no amount is included in the individual's tax return or payment summary. Because the amount is not assessable to the recipient, no PAYG withholding requirement will arise for the payer. However, the payer of such a benefit needs to consider the application of Fringe Benefits Tax to it. Provision of fringe benefits can create a fringe benefits tax liability for the payer of such reimbursements.
Domestic Travel
8. Where the payments comply with the guidelines set out by the commissioner the withholding obligation can be reduced to nil for the allowances for domestic travel.
9. The Tax Office issues Taxation Determinations setting out the reasonable allowance amounts for travel allowance expenses. The reasonable travel and overtime meal allowance expense amounts for the 2013-14 financial year are contained in Taxation Determination TD 2013/16. The commissioner's guidelines are set out in Taxation Ruling TR 2004/6.
Overseas Travel
10. The allowance for international travel can also be treated the same as domestic travel to the extent it is for food, drink and incidentals.
11. However an allowance for overseas accommodation is potentially subject to PAYG Withholding. Therefore where the allowance received for international travel relates to accommodation there is a requirement to withhold PAYG, subject to any PAYG exceptions in accordance with the application of the commissioner's PAYG guidelines.
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