What are allowances?

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 can't 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 that have been folded-in to normal salary or wages are not treated separately for withholding.

What are the differences between allowances and reimbursements?

Allowances are amounts 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.

Reimbursements made to employees are exact compensation for actual expenses incurred, and the employer may be subject to fringe benefits tax (FBT). If the reimbursement is covered by FBT, the amount is not assessable income to the employee, and the employee cannot claim a deduction for the expense.

What are your super obligations when paying allowances?

Super guarantee contributions are payable on an employee's ordinary time earnings.

Expense allowances and reimbursements aren't 'salary or wages' and therefore aren't ordinary time earnings.

Expense allowances are paid to an employee with a reasonable expectation that the employee will fully expend the money on tax-deductible items, in the course of their work,

Similarly, a reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not salary or wages.

'On call' allowances paid when employees are required to make themselves available during hours they aren't otherwise working are excluded from ordinary times earnings. On call allowances paid for ordinary hours of work, such as an on call loading, are ordinary time earnings.

What is the correct withholding treatment for allowances?

The correct withholding treatments and payment summary requirements for various allowance types are listed in the tables below.

Table 1 lists the various types of allowances that an employee might receive and describes how these allowances are treated.

Table 2 lists those allowances, which are subject to a varied rate of withholding.

You must follow the withholding and reporting requirements as outlined in the tables below to allow your employees to correctly complete their income tax return.

Table 1

Table 2

Allowances, which 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.

• The approved rate is 66 cents per kilometre for the year commencing 1 July 2015.
• An award transport payment is a payment covering particular travel that was paid under an industrial instrument (that is, an award, order, determination or industrial agreement) that was in force under Australian law on 29 October 1986.
• The current threshold amount for laundry expenses is $150. Dry cleaning allowances should have an amount withheld in accordance with Table 1.
• Each year we publish a determination setting out the reasonable amounts for

• Overtime meal allowance expenses
• Domestic travel allowance expenses
• Travel allowance expenses for employee truck drivers
• Overseas travel allowance expenses.

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