Edited version of private advice

Authorisation Number: 1052095744431

Date of advice: 27 April 2023

Ruling

Subject: Pay as you go withholding - expense benefits payment

Question

Is the Allowance a payment subject to Pay As You Go Withholding (PAYGW) pursuant to section 12-35 of Schedule 1 Part 2-5 of the Tax Administration Act 1953?

Answer

Yes.

This ruling applies for the following period:

Period ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The employer is a local government authority.

There is an agreement (the Agreement) in force with employees.

The Agreement specifies the ordinary hours of work for a full-time wages employee and for a full-time salaried employee.

The Agreement provides the terms of payment of an allowance (the Allowance).

You advise that the Allowance was a new policy designed so that all employees commence on site with all tools and equipment. The intention of the Allowance was for employees to arrive at site able to start work at their normal starting time, rather than arriving at work at their normal starting time and then needing to travel to the depot to get the equipment or materials required to perform work tasks.

You advise that largely speaking employees will be travelling in the employer vehicles. Employees who travel by their own means directly to and from site, are unlikely to transport significant tools and equipment in their own vehicles.

The Allowance is paid once per day and the rate does not increase depending on the time spent travelling. The Allowance overrides any provisions in the Agreement that provide for a travel allowance.

Relevant legislative provisions

Tax Administration Act 1953 Schedule 1 Part 2-5 section 12-1

Tax Administration Act 1953 Schedule 1 Part 2-5 section 12-35

Other references

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'

Reasons for decision

Section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA) requires an employer to withhold from payments made to employees in the following circumstances:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Paragraph 72 and 73 of Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' outlines certain payments are not salary and wages.

72. An expense allowance, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'.

73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary and wages'.

Paragraph 123 and 124 provides an example shows how the expense allowance is expected to be fully expended:

123. Matteo is an employee of JJ Investment Pty Ltd. In addition to his usual salary, Matteo is paid $300 per month to cover expenses he is expected to incur while visiting clients. The expenses Matteo incurs are for travel to client sites, maintenance of a mobile phone and internet access to remotely connect to the office. The allowance is a predetermined amount which has been calculated to cover the estimated expense and is given with the expectation that it will be fully expended in the course of the employee providing the services to the employer.

124. As the allowance is not a reward for the services which he is providing as an employee of the company, the payment is not considered to be 'salary or wages'.

Paragraph 141 to 142 of SGR 2009/2 provides an example of reimbursement of travel costs.

141. Genevieve uses her own car to travel 100 kilometres on behalf of her employer, FTR Inc. Genevieve pays for any expenses such as petrol and incurs wear and tear on her vehicle. On her return, Genevieve submits a claim for $58 for her travel costs and receives a payment from FTR Inc. Genevieve has calculated the amount by applying a set rate per kilometre travelled based on the statutory formula in the income tax laws.

Salary or wages

142. The payment made to Genevieve by FTR Inc is not paid as reward for performing services as an employee. Rather, the payment is a reimbursement for the expense calculated on a reasonable basis according to income tax laws. The payment is therefore not 'salary or wages'.

The Allowance is not an expense allowance as the allowance is not paid to reimburse the employee for expenses they have or are expected to have incurred. This is because the Allowance is paid regardless of whether employees are travelling in their own or employer vehicles. Further, the conditions of receiving the Allowance are not contingent on the employee incurring any expense.

The Allowance is unique in the Agreement which provides for other employees working in other areas to receive a travel allowance when certain conditions were met. One such condition is that an allowance is paid to cover all time and costs with traveling and transporting employer equipment in the employee's private vehicle. This expectation is not laid out in the Allowance.

The Allowance is salary and wages to the employee and the employer will need to withhold PAYGW from the Allowance.

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