Edited version of your written advice

Authorisation Number: 1013037857987

Date of advice: 22 June 2016

Ruling

Subject: Do allowances on employees' payment summaries contravene the definition of a 'payment summary'

Question 1

Would the inclusion of domestic or overseas travel allowances on employee payment summaries involving an overnight absence that do not exceed the reasonable amounts, as prescribed in Taxation Determination TD 2015/14, contravene section 16-170 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No

Question 2

Is the entity obligated to include allowances on payment summaries paid to employees which are equal to or less than the published "reasonable amounts" under PAYG Bulletin No 1?

Answer

No

This ruling applies for the following periods

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on

1 July 2015

Relevant facts and circumstances

The entity is an employer.

The entity pays its employees an allowance which is the same as the published reasonable amount for meals and accommodation whilst they are travelling on work and the travel involves overnight absences from their residence.

The paid allowance is to be adjusted annually in line with the relevant ATO ruling (currently TD 2014/19.

Relevant legislative provisions

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

Reasons for decision

Question 1

All references following are to Schedule 1 to the Taxation Administration Act 1953 (TAA) unless otherwise stated.

Section 16-170 outlines the form and content of payment summaries.   

16-170(1) states: 

A payment summary (except one relating to section 12-175 or 12-180 or Subdivision 12-H) is a written statement that:

(a) names the payer and the recipient; and

(b) if the recipient has given the recipient's tax file number or ABN to the payer - states the tax file number or ABN; and

(c) states the total of the withholding payments (if any) that it covers, and the total of the amounts withheld by the payer from those withholding payments; and

(d) specifies the financial year in which the withholding payments were made; and

(e) specifies the reportable fringe benefits amount (if any) that it covers and the income year to which that amount relates; and

(f) specifies the reportable employer superannuation contributions (if any) that it covers and the income year to which those contributions relate; and

(g) is in the approved form.

The term "withholding payments" is defined under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). In part it states a withholding payment means a payment from which an amount must be withheld under Division 12 (even if the amount is not withheld).

Section 12-35 of Division 12 states that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

Under paragraph 16-170(1)(c) the payment summary is a written statement that states the total of the withholding payments (if any) that it covers, and the total of the amounts withheld by the payer from those withholding payments.

If the domestic or overseas travel allowances paid to employees were to be included on their payment summaries it would not contravene section 16-170. However, the Commissioner has made concessions in relation to withholding from certain allowances.

Question 2

Allowances are separately identified payments made to an employee for:

• Working conditions - for example, danger, height or dirt

• Qualifications or special duties - for example, first aid certificate or safety officer

• Expenses that cannot be claimed as a tax deduction by the employee - for example normal travel between home and work

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

Allowances are paid to cover anticipated costs or as compensation for conditions of employment, and are paid regardless of whether the employee incurs an expense.

Allowances are assessable income to the employee and are generally included as income in their tax return. The employee may be entitled to claim a deduction for the expense.

The correct withholding treatment and payment summary requirements for various allowances are covered by PAYG Bulletin No 1 (the bulletin).

There are two tables in the bulletin. The first table lists the various types of allowances that a payee might receive and describes how these allowances must be treated by the payer, whereas the second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary.

The second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld. Allowance types such as the following are included in table 2:

• award transport payments

• laundry allowance for deductible clothing

• award overtime meal allowances

• domestic or overseas travel allowance; and

• cents per kilometre car expenses payments using the approved rates where:

• the usage is up to 5,000 business kilometres; and

• the usage is in excess of 5,000 business kilometres.

Items in the second table are subject to a varied rate of withholding provided the employee 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, and provided the amount and nature of the allowance is shown separately in the accounting records of the employer.

According to table 2 domestic or overseas travel allowances involving an overnight absence from the employee's ordinary place of residence which is up to the reasonable allowances amount:

• are not required to have PAYG amounts withheld from them

• are not required to be included in the employee's payment summary; and

• super guarantee does not apply to the allowance.

In this case where a domestic or overseas travel allowance is paid to employees there is no obligation on the entity to withhold PAYG from the allowance, there is no obligation to show the allowance on the relevant employee's payment summary and super guarantee does not apply to the payment.

Additional information

In the situation where an allowance is shown on the employee's payment summary:

• The allowance is to be included as assessable income in the tax return of the employee.

• The employee may be able to claim a deduction for expenses actually incurred in the tax return. The employee needs to meet the substantiation requirements in order to claim a deduction for expenses.

The Commissioner has made a number of concessions in relation to substantiation.

Taxation Ruling TR 2004/6 explains the way in which the substantiation exception operates for work expenses of employees that are either reasonable travel allowance expenses or reasonable overtime meal allowance expenses.

Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a meal allowance expense or travel allowance expense, unless the expense qualifies as a deduction under a provision of the Act and written evidence of the expense has been obtained and retained by the employee.

Subdivision 900-B of the ITAA 1997 also provides that the substantiation requirement to obtain written evidence does not apply to claims by employee taxpayers for expenses covered by:

• an overtime meal allowance paid under an industrial instrument; or

• a domestic travel allowance or overseas travel allowance, whether or not the allowance is paid under an industrial instrument,

if the amount of the claim for losses or outgoings incurred does not exceed the reasonable amounts.

However, TR 2004/6 also states that even if a taxpayer relies on the exception from substantiation, they may still be required to show the basis for determining the amount of their claim, that the expense was actually incurred, and that it was for work-related purposes. What counts as evidence for a claim subject to the substantiation exception will vary according to individual circumstances and the nature of the expense.