Edited version of your written advice

Authorisation Number: 1013140877553

Date of advice: 21 December 2016

Ruling

Subject: PAYG Withholding- Travel Allowance

Question 1

Is the entity required to withhold from transport allowance payments made fortnightly to employees based on the number of visits to clients under section 12-35 of Schedule 1 of the Taxation Administration Act 1953?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are a payroll service provider that makes payments to an entity employing home care employees.

The relevant award has provisions for two types of payments to the employees.

The first provision is a travel claim which is paid at the fixed rate per kilometre method and requires justification of the kilometres travelled.

The second provision is a flat rate amount which is based on the number of shifts worked in a fortnight.

This is a direct relationship to the clients they support in a fortnight period as the organisation provides in home support and the employee is required to use their own car to travel from one client to the next.

The relevant award lists the following details in relation to the travel allowance.

Travel allowance:

Employees are required to use their own vehicles to travel to client's homes. In recognition of the costs incurred, a fixed travel allowance will be paid to employees fortnightly in accordance with the clauses in the award

The clause states:

Allowances:

Travel reimbursement:

An amount per fortnight depending on the number of shifts per fortnight which decreases depending on the number of shifts.

The intent of the fixed payment amounts was to make it less onerous on the employee having to complete a kilometre log each fortnight.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Income Tax Assessment Act 1936 paragraph 26(eaa)

Fringe Benefits Tax Assessment Act 1986 section 22

Reasons for decision

Taxation Ruling TR 92/15 explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), or whether that payment is assessable income under the Income Tax Assessment Act 1936 (ITAA 1997). Paragraphs 2 and 3 of TR 92/15 states:

2. 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. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

Paragraph 4 of Income Tax Ruling IT 2543 specifies that the treatment of transport allowances differs to the reimbursement by an employer of expenses incurred by an employee on transport. Reimbursements for expenses are generally considered under the fringe benefits tax legislation which places the tax obligations (if any) on the employer and not the employee. However, there are some reimbursed car expenses which are exempt from fringe benefits tax under section 22 of the FBTAA 1986. Where this is the case paragraph 26(eaa) of the ITAA 1936 specifically includes the reimbursement amount in the employee's assessable income.

Paragraph 3 of IT 2543 states that transport allowances are assessable income of an employee. Where claims against these allowances cannot reasonably be expected to be deductible, the allowances should be included as part of the gross salary on an employee's group certificate and tax instalments deducted at the appropriate rate.

A reimbursement is compensation of exact costs incurred by an employee. It cannot be calculated on a set formula. You pay an amount to cover the costs incurred by the employees for the use of their own motor vehicle to travel between clients. The payment is calculated on a set rate for the number of visits, not on the basis of exact expenses incurred. As such the payments you make to the employees are considered to be an allowance. Furthermore the payment is an 'exempt car expense payment benefit' as specified under section 22 of the FBTAA 1986 i.e. it is exempt from fringe benefits tax as it is income in the hands of the employee.

Therefore the payments you make form part of an allowance and the amount paid to your employees is included in their assessable income.

Section 12-35 of Schedule 1 to the TAA provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee.

In this case, the amounts paid to employees who use their own motor vehicle to travel between clients are allowances, and are therefore subject to PAYG withholding tax.

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