1012734048392 | Legal database

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Edited version of your written advice

Authorisation Number: 1012734048392

Ruling

Subject: Overtime meal allowance

Question 1

Should an amount paid for overtime meal allowance appear on an employee's payment summary?

Answer

This ruling applies for the following period:

1 July 2014 - 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

• Employees are currently covered by an Enterprise Agreement 2011 - 2014.

• An employee required to work and who works overtime for more than one hour after working ordinary hours shall either be supplied with an adequate meal or paid $13.25 for each meal.

• The meal allowance shall be paid to the employee at the time when the normal pay is made, or on such other arrangement as may be mutually acceptable.

Reasons for decision

Question 1

Should an amount paid for overtime meal allowance appear on an employee's payment summary?

Detailed reasoning

TR 92/15 - Income tax and fringe benefits tax: the difference between an allowance and a reimbursement states:

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

…

3. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.

4. The meaning of the word "reimburse" includes payments made in advance of expenditure as long as those payments possess the characteristics outlined in paragraph 3.

…

6. The word "allowance" is defined in the Macquarie dictionary as "a definite sum of money allotted or granted to meet expenses or requirements". An allowance will usually consist of the payment of a definite predetermined amount to cover an estimated expense, and will be paid regardless of whether the recipient incurs the expected expense.

7. In Case 153 10 TBRD 480 the Taxation Board of Review said at 484:

"Our view is that between employer and employee there is a marked difference between a reimbursement and an allowance. A reimbursement transfers from the employee to the employer the burden of expenses actually incurred in the course of employment. An allowance is designed to compensate the employee because the employer does not wish to be under the obligation of meeting such expenses directly or indirectly".

A similar position was adopted in Case B55 (1951) 2 TBRD (NS) 227.

8. The Canadian case of R v Davis (1978) DLR (3d) 233 lends further support to this position. In that case, Anderson J held at 235 and 237 that an allowance includes a payment to be made for a particular purpose which does not carry with it any liability to account. He added that it is an amount determined arbitrarily and set as a top limit. Also, it is clearly to be distinguished from a 'reimbursement' which indicates a payment of a variable sum dependent on a precise accounting for the actual expenditure.

Summary

As the payment made to the employee is a definite predetermined amount to cover an estimated expense and is paid regardless of whether the recipient incurs the expected expense the amount would be an allowance not a reimbursement.

PAYG Withholding

PAYG bulletin no.1 - taxing of allowances for the 2000/01 and future income years states, that allowances are separately identified payments made to a payee and they are folded in to normal salary/wages - for example, overtime meal allowances are treated as part of salary/wages for tax purposes. They are not considered to be separately identified payments.

Table 2 of the bulletin lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary.

The Commissioner has approved PAYG withholding variations for the 2000/01 and future income tax years for allowances as shown in this table:

• The payee is expected to incur expenses that may be able to 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 payer.

• Table 1 of this bulletin lists the various types of allowances that a payee might receive and states how these allowances must be treated by the payer.

• Table 2 of this bulletin lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary.

Table 2 of this publication provides the following:

Allowance type	Withhold PAYG?	Show on payment summary?
Cents per kilometre car expense payments using Tax Office rates (1) For payments made up to 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled.	No	Yes (show total allowance separately in allowance box)
For payments made in excess of 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled.	Yes (from the payment for the excess over 5,000 km)	Yes (show total allowance separately in allowance box)
Award transport payment(2) • For deductible transport expenses	No	Yes (show total allowance separately in allowance box)
• For non-deductible transport expenses	Yes (from total payment)	Yes (show total allowance in gross payment)
Laundry (not dry cleaning) allowance for deductible clothing • Up to the threshold amount	No	Yes (show total allowance separately in allowance box)
• Over the threshold amount	Yes (from excess over the threshold amount)	Yes (show total allowance separately in allowance box)
Award overtime meal allowances • Up to reasonable allowance amount	No	No
• Over the reasonable allowance amount The allowance must be paid under an industrial instrument in connection with overtime worked.	Yes (from excess over reasonable allowances amount)	Yes (show total allowance separately in allowance box)
Domestic or overseas travel allowance involving a overnight absence from payees ordinary place of residence. • Up to reasonable allowances amount	No	No
• Over reasonable allowances amount	Yes (from excess over reasonable allowances amount)	Yes (show total allowance separately in allowance box)

Summary

In your case, you will be making payments to employees who are required to work overtime for more than one hour after working ordinary hours.

The payments are characterized as allowances such as an overtime meal allowances paid under an Enterprise Agreement. It is clear from the Bulletin and publication included above that the amounts do not have to be shown on the PAYG summary if they are less than the reasonable allowance amount.

Reasonable allowance amount.

TD 2013/16 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2013-14 income year states:

4. For overtime meal expenses to be considered under the exception from substantiation, the meal allowance must be a bona fide meal allowance (refer to paragraph 87 of TR 2004/6) paid or payable under a law of the Commonwealth or of a State or Territory, or an award, order, determination or industrial agreement in force under such a law (section 900-60 of the ITAA 1997).

5. For the 2013-14 income year the reasonable amount for overtime meal allowance expenses is $27.70.

Summary

In your case, you pay an overtime meal allowance under an Enterprise Agreement that is considered by the Commissioner to be less than the reasonable allowance amount.

Conclusion

In your case you are an employer that pays your employees a definite predetermined amount to cover an estimated expense for overtime meal allowance this is paid regardless of whether the recipient incurs the expected expense and is therefore an allowance. This allowance is paid to your employees under an enterprise agreement and is less than the amount considered by the Commissioner to be a reasonable amount. It is clear from the information you have provided that the amounts do not have to be shown on the employees PAYG summary.

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