Pay As You Earn

PAYE Bulletin 5

Taxing of Allowances for the 1997/98 Income Year

• This document has been Withdrawn.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 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 debit assessment at the end of the year. From the employer's point of view, a failure to deduct tax instalments or disclose allowances paid on a Group Certificate may result in penalties being imposed on the employer.

The following information outlines the correct tax treatment of allowances for the 1997/98 income year.

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 non-deductible expenses, for example, normal travel between home and work; or

• • for expected deductible work related expenses, 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/wages and tax deducted from the gross payment. The total allowance should be included as part of the gross salary/wages on the Group Certificate.

• • Allowances paid for deductible work related expenses should be added to an employee's salary/wages and tax deducted from the gross payment. The total allowance should be shown in the allowances box with an explanation code. These requirements may be varied for some allowances, such as those shown overleaf.

Which payments do not require tax instalment deductions?

You do not need to make tax instalment deductions from the following allowances if the employee is expected to incur deductible expenses 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 value of $150 per annum;

• • overtime meal allowances up to $15 per meal paid under an industrial instrument in connection with overtime worked; and

• • domestic or overseas work related travel allowances up to the amount the Commissioner considers reasonable (Taxation Ruling TR97/14 lists the reasonable amounts for travel allowance expenses):

  • (i) a domestic travel allowance is an allowance paid to cover expenses on accommodation or food or drink or expenses incidental to the travel, where a sleep away from home is involved.

  • (ii) an overseas travel allowance is an allowance paid to cover expenses on food or drink or expenses incidental to the travel, where a sleep away from home is involved.

Note: Tax instalments should be deducted from allowances (or part of allowances) paid to cover overseas accommodation expenses. This allowance should be shown separately in the allowance box on the Group Certificate.

Part day travel allowance

A part day travel allowance is not paid for travel away from the employee's ordinary 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/wages and tax deducted from the gross payment. The total allowance should be included as part of gross salary/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. To assist employees to meet their tax obligations, the Tax Office prefers that car expense payments made on a cents per kilometre basis are shown in the allowance box on the Group Certificate, with an explanation code.

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

• • the payment is for non-deductible travel for example, normal travel to and from work; or

• • the employee does not expect to incur deductible expenditure at least equal to the amount of the payment.

The following tables show the correct PAYE treatment of the more common allowances paid by employers.

Table 1 (a)

Allowances subject to normal PAYE deductions for the 1997/98 income year

Table 1(b)

Preferred treatment of car expense payments calculated on a cents per kilometre basis

Table 2 Allowances for which the Commissioner has approved PAYE variations for the 1997/98 income year.

Provided the employee is expected to incur deductible expenses at least equal to the allowance

Do you need more information ?

If you have any questions or need more information about how to tax allowances paid to employees, you can contact your local 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 2601-7.99

Related Rulings/Determinations:
PAYE Bulletin 5 - Notice of Withdrawal