Pay As You Earn

PAYE Bulletin 8

Taxing of Allowances for the 1998/99 and Future Income Years

• This document has been Withdrawn.
  View the Withdrawal notice for this document.

Date of Issue: 1 July 1999

Valid from 1 July 1999

About this bulletin

The Pay As You Earn (PAYE) system requires tax to be deducted at prescribed rates from allowances paid to employees.

The failure to deduct tax instalments from allowances can cause concern to employees as well as to employers. From an employee's point of view, if tax instalments are not deducted from allowances paid during the year the employee may receive a tax bill at the end of the year. From the employer's point of view, a failure to deduct tax instalments or to disclose allowances paid on a Group Certificate may result in penalties being imposed on the employer.

The information in this bulletin outlines the correct tax treatment of allowances.

What are allowances?

Allowances are payments made to an employee:

• • for working conditions, for example, danger, height, dirt;

• • for qualifications or special duties, for example, first aid certificate, safety officer;

• • for expenses that can't be claimed as a tax deduction by the employee, for example, normal travel between home and work; or

• • for work related expenses that may be able to be claimed as a tax deduction by the employee, for example travel between work sites.

What is the correct tax treatment for allowances?

• • Allowances paid for working conditions, qualifications, special duties or for non-deductible expenses should be added to an employee's salary or wages and tax deducted from the gross payment. The total allowance should be included as part of the gross salary or wages on the Group Certificate.

• • Allowances paid for deductible work related expenses should be added to an employee's salary or wages and tax deducted from the gross payment. The total allowance should be shown in the allowances box on the Group Certificate with an explanation. These requirements may be varied for some allowances, such as those listed in the next section of this bulletin.

Which payments do not require tax instalment deductions?

You do not need to make tax instalment deductions from the allowances described below, provided the employee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the allowance paid.

• • Award transport payments paid under an industrial instrument that was in force on 29 October 1986.

• • Laundry expense allowances - up to the threshold amount for substantiation purposes. The income tax law specifies an amount of $150 but this amount can be increased from time to time by regulation. Employers are advised to check with the Tax Office to determine whether the amount has been increased.

• • Overtime meal allowances paid under an industrial instrument in connection with overtime worked - up to the reasonable allowances amount for that income year.

• • Domestic work related travel allowances (other than a part day travel allowance) paid to cover accommodation or meals or incidental expenses - up to the reasonable allowances amount for that income year.

• • Overseas work related travel allowances (other than a part day travel allowance) paid to cover meals or incidental expenses - up to the reasonable allowances amount for that income year.

Reasonable allowances amounts

The Tax Office publishes an annual Ruling in June that sets out the reasonable allowances amount for award overtime meal allowance expenses and travel allowance expenses. You should refer to this Ruling for the current year reasonable allowances amount. You can get a copy of the Ruling by telephoning the Tax Office's general enquiry line on 13 28 61 or from the Internet. Our Internet address is www.ato.gov.au

Part day travel allowance

A part day travel allowance is an allowance paid for travel that does not require an overnight absence from the employee's ordinary place of residence, that is the employee does not sleep away from home.

Allowances paid for part day travel should be added to an employee's salary or wages and tax deducted from the gross payment. The total allowance should be included as part of gross salary or wages on the Group Certificate.

Car expense payments calculated on a cents per kilometre basis

Car expense payments calculated on a cents per kilometre basis form part of the income of the employee and must be included in the employee's income tax return. While tax is not required to be deducted from such payments, the total amount of the payments made in a year should be shown in the allowance box on the Group Certificate with a note.

The employee may request that extra tax instalments be deducted from the employee's gross salary or wages to cover any anticipated taxation liability where:

• • the payment is for car expenses that can't be claimed as a tax deduction, for example, travel between home and work; or

• • the employee does not expect to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the payment.

Table 1

Allowances subject to normal PAYE deductions for the 1998/99 and future income years

Table 2

Allowances for which the Commissioner has approved PAYE variations for the 1998/99 and future income years, provided the employee is expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the allowance.

(1) An award transport payment is a transport payment paid under an industrial instrument, (i.e an award, order, determination or industrial agreement) that was in force under Australian law on 29 October 1986.

(2) Contact the Tax Office to confirm the current threshold amount for laundry expenses. Dry cleaning allowances should have tax instalments deducted in accordance with Table 1.

(3) The Tax Office publishes an annual Ruling in July that sets out the reasonable allowances amount for award overtime meal allowance expenses and travel allowance expenses.

Do you need more information?

If you have any questions or need more information about PAYE and how to tax allowances paid to employees, you can contact the Tax Office:

• • by telephone on our national enquiry number 13 28 66 . You can ring this number from anywhere in Australia for the cost of a local call;

• • in person by visiting the enquiries counter at the Tax Office. Addresses for the Tax Office are listed in TaxPack, as well as in the White Pages telephone directory;

• • by A Fax from Tax, our 24 hour fax information service. Simply call 13 28 60 (local call cost) on your phone or fax and follow the voice prompts; or

• • at our Internet site, ATOassist www.ato.gov.au

ATO references:
NO NAT 2727-7.99

Related Rulings/Determinations:
PAYE Bulletin 8 - Notice of Withdrawal