Edited version of private advice

Authorisation Number: 1052222857936

Date of advice: 4 April 2024

Ruling

Subject: Allowances and tax withholding

Question

Does the Employer have an obligation to withhold from payments made to casual relief employees under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes. the Employer has an obligation to withhold from payments made to casual relief employees.

This ruling applies for the following period:

Year ending 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

In recent years, a government department has paid an allowance to encourage casual relief employees to take up positions in regional areas.

The allowance is paid by the department to employment agencies (including the Employer) who employ the casual relief employees.

The department has advised that the allowance has been calculated with regard to the additional expenses of travel, food and accommodation that casual relief employees incur to take up those positions.

The department has left it to the discretion of the Employer as to how the payment is made to the casual relief employees.

Relevant legislative provisions

Section 12-1 of Schedule 1 to the Taxation Administration Act 1953

Section 12-35 of Schedule 1 of the Taxation Administration Act 1953

Section 16-155 of Schedule 1 of the Taxation Administration Act 1953

Section 16-170 of Schedule 1 of the Taxation Administration Act 1953

Legislative Instrument F2015L01047 (Variation 38)

Reasons for decision

Travel allowances and withholding

Section 12-35 of Schedule 1 to the TAA provides that a payer must withhold Pay As You Go (PAYG) from various payments made to an individual as an employee (whether of that entity or another entity), including allowances.

However, legislative instrument F2015L01047 provides a PAYG variation whereby certain allowances received by employees do not require amounts to be withheld. Guidance on these variations can be found on the ATO website by searching for 'QC 51680'.

The PAYG variation includes allowances paid for food and accommodation expenses for domestic travel including an overnight absence from the employee's usual residence. However, it only applies where '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'.

In determining whether legislative instrument F2015L01047 is applicable in the current circumstances, it is necessary to consider whether casual relief workers who accept postings in regional areas (and who are paid the allowance) are expected to incur travel expenses that may be claimed as a tax deduction.

Deductibility of travel expenses

The ATO view on when food and accommodation expenses incurred on overnight travel are deductible as a work-related expense is provided in Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances.

Accommodation and food and drink expenses are deductible where they have sufficiently close connection to the performance of employment duties. The expenses must arise from performing income-producing activities, rather than out of the personal circumstances of the employee.

Paragraphs 25 to 37 of TR 2021/4 consider situations where the occasion of food and accommodation expenses is found in personal circumstances, rather than employment duties. Where the employee lives a considerable distance from the place where they produce their assessable income due to their personal circumstances, food and accommodation expenses are not work-related and not deductible. In the examples included in the ruling, employees who choose to undertake income-producing activities far from their homes are not entitled to a deduction for food and accommodation expenses.

Guidance for employers can also be found in Practical Compliance Guideline PCG 2021/3 Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location - ATO compliance approach. This reiterates that an employee is not travelling for work if the travel arises from their personal circumstances (note 18).

Application to the allowance paid to employees

Eligible employees who accept postings in regional areas may receive an allowance. The allowance is intended to recompense the employees for additional expenses incurred on travel, food and accommodation.

Casual workers who travel to regional areas are travelling because their usual residence is far away from the place of employment. The travel places the workers in a position to commence their income-producing activities, it is not a part of those activities. The travel arises from their personal circumstances, and therefore food and accommodation expenses are not deductible.

As the allowance is not paid for deductible expenses, it is not covered by the PAYG variation allowed by legislative instrument F2015L01047. Guidance on the ATO website (search for 'QC 51680') confirms that allowances for non-deductible expenses must have PAYG withheld and be included in the gross payment amount.

Therefore, pursuant to section 12-35 of Schedule 1 to the TAA, the Employer - as the payer of the allowance to a casual relief employee (that is, to an individual as an employee of the Employer) - is required to withhold an amount of PAYG from the allowance paid to the casual relief employee. None of the general exceptions in section 12-1 of Schedule 1 to the TAA apply in these circumstances.

Further, pursuant to section 16-155 of Schedule 1 to the TAA, the Employer is required to issue a payment summary to each casual relief employee to whom the allowance is paid. As per section 16-170 of Schedule 1 of the TAA, the payment summary should state the total of all withholding payments and the PAYG amounts withheld.

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