Edited version of your written advice

Authorisation Number: 1012738637622

Ruling

Subject: Treatment of Allowances

Pay As You Go (PAYG) Withholding Tax

Question 1

Are you required to withhold an amount from the following allowances paid to Employees?

(a) Expense Allowance

(b) Exit Allowance

(c) Accommodation Allowance

(d) Overnight Allowance

(e) Travel Allowance

(f) Overnight Allowance

(g) Expenditure Allowance

(h) Transport Allowance

(i) Motor Vehicle Allowance

Answers

(a) Expense Allowance

Yes.

(b) Exit Allowance

Yes.

(c) Accommodation Allowance

No.

(d) Overnight Allowance

No, unless it exceeds the reasonable allowances amount.

(e) Travel Allowance

No, unless it exceeds the reasonable allowances amount.

(f) Overnight Allowance

No, unless it exceeds the reasonable allowances amount.

(g) Expenditure Allowance

Yes.

(h) Transport Allowance

No.

(i) Motor Vehicle Allowance

Yes.

Payment Summaries

Question 2

Are the following allowances required to be included on the payment summaries of the employees?

(a) Expense Allowance

(b) Exit Allowance

(c) Accommodation Allowance

(d) Overnight Allowance

(e) Travel Allowance

(f) Overnight Allowance

(g) Expenditure Allowance

(h) Transport Allowance

(i) Motor Vehicle Allowance

Answers

(a) Expense Allowance

Yes.

(b) Exit Allowance

Yes.

(c) Accommodation Allowance

Yes.

(d) Overnight Allowance

No, unless it exceeds the reasonable allowances amount.

(e) Travel Allowance

No, unless it exceeds the reasonable allowances amount.

(f) Overnight Allowance

No, unless it exceeds the reasonable allowances amount.

(g) Expenditure Allowance

Yes.

(h) Transport Allowance

No.

(i) Motor Vehicle Allowance

Yes.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The employer provides different allowances to its employees as follows:

Expense allowance

The amount of each expense allowance has not been determined by reference to a methodology that considers the amount each particular employee is likely to expend in undertaking their duties. Therefore, the expense allowance has no direct relationship to the actual cost incurred, or likely to be incurred, by the employees.

Exit allowance

An Exit Allowance is made in consequence of the termination of employment.

Accommodation allowance

Overnight allowance

An allowance involving an overnight absence from the employee's ordinary place of residence.

Travel allowance

The Travel Allowance is an allowance paid to employees for each overnight stay on business within Australia.

Overnight allowance

An allowance involving an overnight absence from the employee's ordinary place of residence. The amount of the allowance is the lesser of the actual accommodation expenses incurred by the employee for that overnight stay and the travelling allowance rate.

Expenditure allowance

The Expenditure Allowance is designed to cover incidental expenditure.

Transport allowance

The amount of the allowance is equal to the expenses actually incurred by the employee.

Motor Vehicle allowance

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 subsection 82-130(1)

Income Tax Assessment Act 1997 section 82-135

Income Tax Assessment Act 1997 subparagraph 82-130(1)(a)(i)

Income Tax Assessment Act 1997 paragraph 82-130(1)(b)

Income Tax Assessment Act 1997 section 82-130

Taxation Administration Act 1953 section 12-85 of Schedule 1

Reasons for decision

Questions 1 & 2

Expense Allowance

1(a) PAYG Withholding Tax Requirements

The expense allowance will be subject to PAYG withholding tax requirements.

2(a) Payment Summary Requirements

The Expense Allowance is subject to PAYG withholding tax. The Expense Allowance should be reported on the employee's payment summary.

Exit Allowance

1(b) PAYG Withholding Tax Requirements

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that:

employment termination payment has the meaning given by section 82-130.

Subsection 82-130(1) of the ITAA 1997 states that:

A payment is an employment termination payment if:

(a)     it is received by you:

(i)       in consequence of the termination of your employment; or

(ii)     after another person's death, in consequence of the termination of the other person's employment; and

(b)     it is received no later than 12 months after that termination (but see subsection (4)); and

(c)     it is not a payment mentioned in section 82-135.

Section 82-135 of the ITAA 1997 excludes certain payments such as accrued annual and long service leave, the tax-free parts of a genuine redundancy payment and an early retirement scheme payment from being an employment termination payment.

Failure to satisfy any of the three conditions will result in the payment not being considered an employment termination payment. Furthermore, any termination payments received outside of the 12 months will be taxed as ordinary income at marginal tax rates, unless the taxpayer is covered by a determination exempting them from the 12 month rule.

Paid as a consequence of the termination of your employment

In Taxation Ruling TR 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13) the Commissioner has considered the meaning of the phrase 'in consequence of'.

In paragraph 5 of TR 2003/13 the Commissioner states:

5. …a payment is made in respect of a taxpayer in consequence of the termination of the employment of the taxpayer if the payment 'follows as an effect or result of' the termination. In other words, but for the termination of employment, the payment would not have been made to the taxpayer.

As further stated by the Commissioner in paragraph 6 of TR 2003/13, there must be:

6. …a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment. The question of whether a payment is made in consequence of the termination of employment will be determined by the relevant facts and circumstances of each case.

The question of whether a payment is made in consequence of the termination of employment will be determined by the relevant facts and circumstances of each case.

It is accepted that an Exit Allowance is made in consequence of the termination of employment. Therefore, the first requirement under subparagraph 82-130(1)(a)(i) of the ITAA 1997 has been satisfied.

The payment is received no later than 12 months after termination

The second condition for the payment to meet the criteria, as an employment termination payment is stated under paragraph 82-130(1)(b) of the ITAA 1997. The payment must be received within 12 months of the employee's termination of employment, unless they are covered by a determination exempting them from the 12 month rule.

If the Exit Allowance is paid to an employee within 12 months of termination the second requirement of paragraph 82-130(1)(b) of the ITAA 1997 will be satisfied.

Exclusions under section 82-135 of the ITAA 1997

As already noted, certain payments made on termination of employment are excluded from being an employment termination payment under section 82-135 of the ITAA 1997.

The Exit Allowance does not fall within any of the exclusions contained in section 82-135 of the ITAA 1997.

Therefore, the Exit Allowance is an employment termination payment under section 82-130 of the ITAA 1997.

PAYG Withholding

Section 12-85 of Schedule 1 to the TAA states:

An entity must withhold an amount from any of the following payments it makes to an individual:

(a)    a superannuation lump sum;

(b)    a payment that is an employment termination payment or would be one except that it is received more than 12 months after termination of employment.

As shown above, the Exit Allowance paid to employees is an employment termination payment. Therefore, an amount must be withheld.

2(b) Payment Summary Requirements

The Exit Allowance is required to be reported on the employee's payment summary as PAYG withholding tax is required to be withheld.

Accommodation Allowance

1(c) PAYG Withholding Tax Requirements

The Accommodation Allowance will not be subject to PAYG withholding tax unless an employee requests PAYG withholding tax to be deducted.

2(c) Payment Summary Requirements

The Accommodation Allowance will be required to be included on the employee's payment summary.

Overnight Allowance

1(d) PAYG Withholding Tax Requirements

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount, no PAYG withholding tax is required to be withheld. If the allowance is over the reasonable allowances amount you must withhold PAYG withholding tax from the excess over the reasonable allowances amount.

Therefore if the Overnight Allowance is up to the reasonable allowances amount it will not be subject to PAYG withholding tax. If the Overnight Allowance exceeds the reasonable allowances amount the excess over the reasonable allowances amount would be subject to PAYG withholding tax.

2(d) Payment Summary Requirements

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount it is not required to be shown on the payment summary. If the allowance is over the reasonable allowances amount then it is required to be shown on the payment summary.

Therefore if the Overnight Allowance is up to the reasonable allowances amount it is not required to be shown on the employee's payment summary. If the Overnight Allowance exceeds the reasonable allowances amount it will be required to be shown on the employee's payment summary.

Travel Allowance

1(e) PAYG Withholding Tax Requirements

The Travel Allowance is an allowance paid to employees for each overnight stay on business within Australia.

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount no PAYG withholding tax is required to be withheld. If the allowance is over the reasonable allowances amount you must withhold PAYG withholding tax from the excess over the reasonable allowances amount.

Therefore if the Travel Allowance is up to the reasonable allowances amount it will not be subject to PAYG withholding tax. If the Travel Allowance exceeds the reasonable allowances amount the excess over the reasonable allowances amount will be subject to PAYG withholding tax.

2(e) Payment Summary Requirements

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount it is not required to show on the payment summary. If the allowance is over the reasonable allowances amount then it is required to be shown on the payment summary.

Therefore if the Travel Allowance is up to the reasonable allowances amount it will not be required to be shown on the employee's payment summary. If the Travel Allowance exceeds the reasonable allowances amount it will be required to be shown on the employee's payment summary.

Overnight Allowance

1(f) PAYG Withholding Tax Requirements

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount no PAYG withholding tax is required to be withheld. If the allowance is over the reasonable allowances amount you must withhold PAYG withholding tax from the excess over the reasonable allowances amount.

Therefore if the Overnight Allowance is up to the reasonable allowances amount it will not be subject to PAYG withholding tax. If the Overnight Allowance exceeds the reasonable allowances amount the excess over the reasonable allowances amount will be subject to PAYG withholding tax.

2(f) Payment Summary Requirements

In table 2 of PAYG Bulletin No. 1, if a domestic or overseas travel allowance involving an overnight absence from a payee's ordinary place of residence is up to the reasonable allowances amount it is not required to show on the payment summary. If the allowance is over the reasonable allowances amount then it is required to be shown on the payment summary.

Therefore if the Overnight Allowance is up to the reasonable allowances amount it will not be subject to be shown on the employee's payment summary. If the Overnight Allowance exceeds the reasonable allowances amount it will be required to be shown on the employee's payment summary.

Expenditure Allowance

1(g) PAYG Withholding Tax Requirements

The Expenditure Allowance is paid to each employee to cover incidental expenditure incurred.

The Expenditure Allowance will not be subject to PAYG withholding tax if it remains that the Expenditure Allowance continues to be fully expended.

2(g) Payment Summary Requirements

The Expenditure Allowance will be required to be shown on the employee's payment summary.

Transport Allowance

1(h) PAYG Withholding Tax Requirements

The Transport Allowance is for actual expenses incurred on business by an employee. The Transport Allowance will not be subject to PAYG withholding tax.

2(h) Payment Summary Requirements

The Transport Allowance is equal to the expenses incurred by an employee for business. Therefore the Transport Allowance is not required to be shown on the employee's payment summary.

Motor Vehicle Allowance

1(i) PAYG Withholding Tax Requirements

Table 1 of PAYG Bulletin no. 1 states that a motor vehicle allowance for both deductible and non-deductible travel requires PAYG withholding tax to be withheld. Therefore the Motor Vehicle Allowance is subject to PAYG withholding tax.

2(i) Payment Summary Requirements

As PAYG withholding tax is required to be withheld from the Motor Vehicle Allowance the allowance will be required to be shown on the employee's payment summary.