Edition 67
Allowances
INTRODUCTION
According to the Tax Office, the treatment of allowances is one of the most misunderstood areas of
payroll. Whether it be misclassifying an amount as an allowance (when it‟s actually a reimbursement) or
applying the incorrect Payment Summary treatment, PAYG withholding, superannuation or payroll tax
treatment, mistakes in this area are easy to make. This BKB addresses all of these issues for the many
of you who handle payroll, and also clarifies the treatment of living away from home allowances
(LAFHAs) in light of recent legislative changes.
REIMBURSMENT VERSUS ALLOWANCE
From the outset it‟s important to define an allowance, and in particular distinguish it from a
reimbursement as the payment summary, PAYG withholding, superannuation and payroll tax treatment
can differ significantly. On the one hand, allowances:

Are generally assessable income to the employee

May be included on an employee‟s payment summary

May attract superannuation, and

The employee may be able to claim a deduction against the allowance for a work-related
expense incurred.
On the other hand, reimbursements:

Are generally not taxable to the employee

Will generally not be included on an employee‟s payment summary

Will be fringe benefit taxable to the employer where they constitute an expense payment fringe
benefit or a LAFHA

May be liable for payroll tax where they constitute a fringe benefit

Will not attract superannuation, and

The employee will not be able to claim a tax deduction for the original expense incurred.
According to Taxation Ruling TR 92/15, an “allowance” is “a definite sum of money allotted or granted
to meet expenses or requirements”. An allowance usually consists of the payment of a definite or predetermined amount to cover an estimated expense, and is paid regardless of whether the recipient
incurs the anticipated expense. An amount is not an allowance if it‟s just folded in to normal salary and
wages. Rather an allowance must be a separately identifiable payment made to an employee for:

Working conditions – e.g. a danger allowance, on-call allowance

Qualifications or special duties – e.g. first aid officer allowance

Expenses that cannot be claimed as a tax deduction by the employee – e.g. travel between
home and work, or

Work related expenses that may be able to be claimed as a tax deduction by the employee –
e.g. travel between work sites or a uniform allowance for a compulsory uniform.
On the other hand, a payment is a reimbursement when the employee is compensated exactly (i.e.
precisely, not approximately), for an expense they have already incurred. In the case of a
reimbursement, the employer considers the expense to be their own, with the employee effectively
incurring the expenditure on behalf of the employer. With a reimbursement, the employee will almost
always be required to produce evidence to the employer of the exact amount and nature of the expense
(e.g. receipt), before the amount is reimbursed to them.
TIP
Be aware that reimbursements may constitute an expense payment fringe benefit. While FBT is outside
the scope of this edition, if you as a bookkeeper determine that your client has provided a fringe benefit
to an employee (or their associate) then depending on the scope of your engagement, it is important
that you record this in the management accounts in a timely and accurate manner. For more information
on accounting for FBT, see editions 1 and 45 of our Bookkeepers Knowledge Base series.
Where an employee receives an expense payment fringe benefit, for income tax purposes it constitutes
non-assessable, non-exempt income to the employee – and therefore will not be recorded on the
payment summary unless it forms part of the reportable fringe benefit amount.
BOOKKEEPERS KNOWLEDGE BASE
1
EXAMPLE – REIMBURSEMENT VERSUS ALLOWANCE (FROM TR 92/15)
Danielle and Thomas are both employees of Faraway Investments Pty. Ltd. Apart from her usual salary,
Danielle, an investment consultant, is paid $500 per month to cover expenses she is expected to incur
while entertaining clients. Under an industrial award, Danielle also receives $50 per fortnight to cover
medical insurance premiums for herself and her family. To be entitled to the $50 per fortnight, Danielle is
required to produce a letter from the health fund certifying that she is a member. Apart from that, she is
not required to vouch for any of the expenses she incurs in relation to either payment.
Thomas, a bookkeeper, is entitled to payment from his employer for medical insurance premiums for
himself and his family up to a limit of $300 per year. To claim the amount from his employer, he is
required to produce his insurance premium statements verifying the amount he has spent
The payments made to Danielle for entertaining clients and for medical insurance are allowances.
Danielle is paid these amounts regardless of whether she spends the $500 on clients and regardless of
whether she spends the whole $50 on medical insurance.
On the other hand, the payments made to Thomas are reimbursements. Thomas is compensated
exactly for his medical insurance expense and would not be entitled to payment if he is unable to
produce evidence of the expense he has incurred. The upper limit of $300 per year does not alter the
character of the payment. The payment by the employer is based on the precise accounting of actual
expenditure.
CENTS PER KILOMETER PAYMENTS
For the many employees who claim their motor vehicle expenses from their employer using a cents per
kilometre basis (e.g. using the rates provided by the Tax Office or stipulated in an Award), these
payments are considered to be an allowance as they are not exact compensation for the expenses
incurred by the employee.
Having established what constitutes an allowance, we now consider its treatment from a Payment
Summary, PAYG withholding, superannuation and payroll tax perspective.
PAYG WITHHOLDING AND PAYMENT SUMMARY
The PAYG rules require that certain types of allowances are subject to withholding whilst others are
not. The following two tables are extracts from a Tax Office bulletin that considers whether PAYG
withholding applies and whether the allowance should be shown on an employee‟s Payment Summary
and, if so, at which label (i.e. “Gross Payments” label or the “Allowances” label).
HOW MUCH?
Where the below table indicates that withholding is required, the allowance amount should be added to
the employee‟s normal earnings for the period (i.e. their salary). This total amount is the amount from
which PAYG withholding for the pay period will be based (i.e. locate this total amount on the PAYG
withholding tax tables, and withhold the corresponding amount).
Table 1 - Allowances subject to PAYG withholding for the 2000–01 and future income years
Allowance type
Withhold PAYG?
Show
on
summary?
Payment
Allowances paid for working conditions,
qualifications or special duties
Yes
Yes
(include total allowance in
gross payment)
Yes
Yes
(include total allowance in
gross payment)
For example:
 crib, danger, dirt, height, site, shift or
travelling time
 trade, first aid certificate or safety officer.
Allowances for non-deductible expenses
For example:
 part-day travel (no overnight absence from
BOOKKEEPERS KNOWLEDGE BASE
2
payee's ordinary place of residence)
 meals (not award overtime meal allowance
or overnight travel allowance)
 motor vehicle for non-deductible travel –
for example, home to work, including cents
per kilometre payments.
Allowances for expected deductible
expenses
For example:
Yes
Yes
(show total allowance
separately in the allowance
box with an explanation)
 tools
 compulsory uniform, dry cleaning
 motor vehicle for work related travel,

including cents per kilometre payments in
excess of Tax Office rate (1)
overseas accommodation for deductible
travel.
Table 2 - Other Allowances subject to PAYG withholding for the 2000–01 and future income
years
The Commissioner has approved PAYG withholding variations for the 2000–01 and future income
years for allowances as shown in this table, provided:
 The payee 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
 The amount and nature of the allowance is shown separately in the accounting records of the payer.
Please refer to the footnotes for further information.
Allowance type
Withhold PAYG?
Show on Payment
summary?
No
Yes
(show total allowance
separately in
allowance box)
Yes
(from the payment for
the excess over
5,000 kms)
Yes
(show total allowance
separately in
allowance box)
No
Yes
(show total allowance
separately in
allowance box)
Yes
(from total payment)
Yes
(show total allowance
in gross payment)
No
Yes
(show total allowance
separately in
allowance box)
Cents per kilometre car expense payments using
Tax Office rates (1)
 For payments made up to 5,000 business
kilometres by applying the Tax Office rate to the
number of kilometres travelled.
 For payments made in excess of 5,000 business
kilometres by applying the Tax Office rate to the
number of kilometres travelled.
Award transport payments (2)
 For deductible transport expenses
 For non-deductible transport expenses
Laundry (not dry cleaning) allowance for
deductible clothing (3)
 Up to the threshold amount
 Over the threshold amount
Yes
Yes
(from excess over the (show total allowance
threshold amount)
separately in
allowance box)
BOOKKEEPERS KNOWLEDGE BASE
3
Award overtime meal allowances (4)
No
No
Yes
(from excess over
reasonable
allowances amount)
Yes
(show total allowance
separately in
allowance box)
No
No
Yes
(from excess over
reasonable
allowances amount)
Yes
(show total allowance
separately in
allowance box)
 Up to reasonable allowances amount
 Over reasonable allowances amount
The allowance must be paid under an industrial
instrument in connection with overtime worked
Domestic or overseas travel allowance involving an
overnight absence from payee's ordinary place of
residence (4)
 up to reasonable allowances amount
 over reasonable allowances amount
An allowance for overseas accommodation must be
subject to PAYG and be shown in the allowance box
on the Payment summary
Footnotes
1.
2.
3.
4.
The Tax Office rates vary depending on the engine capacity of the vehicle and are prescribed
by regulation and updated in May each year.
An award transport payment is a transport payment 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 income tax law specifies an amount of $150 as the threshold amount, but this can be
increased from time to time by regulation. Dry cleaning allowances should have an amount
withheld in accordance with Table 1.
The rates are set out in an annual Tax Determination issued in June each year.
WARNING
The fact that an employee receives an allowance, does not automatically entitle them to a tax deduction
(and even more rarely to the full extent of that allowance). Rather, they must first incur work-related
expenses relating to the purpose of the allowance. Irrespective of whether an employee is likely to incur
such expenses you should withhold in accordance with the PAYG withholding rates. Where the earlier
reproduced tables show that withholding is required, allowances are added to normal the earnings
during the period (i.e. salary) and the amount to withhold is calculated on the total amount of salary and
allowances for the pay period. This amount should not be altered on the basis that the employee is
likely to incur or has incurred deductible expenses relating to the purpose of the allowance.
If an employee wishes to vary the amount withheld from an allowance that they are paid (on the basis
that they will incur deductible expenses relating to that allowance), then they must apply to the Tax
Office by completing a PAYG withholding variation short application – allowances or HELP/financial
supplement. Only if they have applied to, and received approval from, the Tax Office can you alter the
amount to be withheld from an allowance.
Note also that where six or more employees at the one workplace are seeking the same allowance
withholding variation, the employer can apply to the Tax Office for a class variation on their behalf . If
less than six employees are seeking a variation, then they must make individual applications
themselves.
SUPERANNUATION
Whether an allowance attracts superannuation depends very much on the type of allowance. The
general rule is that all allowances received by an employee, except for expense allowances that are
expected to be fully expended and allowances that are fringe benefits (e.g. LAFHAs), will attract
superannuation. However, where an allowance relates to work outside ordinary hours, it will not attract
superannuation (for example, overtime meal allowances and on-call allowances paid to an employee in
return for them making themselves available to be called into work outside ordinary hours) We now
examine various types of allowances that you are likely to come across when handling payroll, and
whether they attract superannuation.
BOOKKEEPERS KNOWLEDGE BASE
4
Unconditional Extra Payment
These allowances attract superannuation. These allowances are paid without any conditions attached to
them – i.e. they don‟t have to be fully expended by the recipient employee, and they won‟t necessarily
be spent for the purpose for which they are provided, yet the employee still gets paid the allowance
regardless.
EXAMPLE
David is a senior manager at a law firm. He is paid a flat $4 000 per year entertainment allowance to
cover any expenses he may incur if and when he entertains potential or existing clients.
The allowance will attract superannuation for the following reasons:

The nature of David‟s work means that the allowance may not necessarily be fully expended –
as a lawyer, he may not incur $4 000 of entertainment expenses on clients

The amount paid to David is an unconditional extra payment made to him regardless of
whether he spends it

David has complete discretion as to whether the allowance is spent, and what he spends the
amount on.
Expense Allowance Expected to be Fully Expended
Where an allowance is paid with the expectation that, because of the nature of the employee‟s duties, it
will be fully expended, it will not attract superannuation. This type of allowance is not provided as a
reward for services but rather in recognition of the expenses that the employee will likely incur in
providing their services. Examples may include a tool allowance for a tradesman, a uniform allowance
for those required to purchase a compulsory work clothes, or a travel allowance for those who regularly
undertake work-related travel for short periods.
EXAMPLE
Cameron is a mobile home loan lender with no fixed office. In addition to his normal salary, his employer
pays him a motor vehicle allowance to cover the travel costs he incurs in meeting with borrowers.
This allowance will not attract superannuation. Because of the nature of his duties (he is required to
travel around to meet potential and existing customers), the allowance paid by Cameron‟s employer is
paid in the expectation that it will be fully expended. The allowance is a pre-determined amount (not a
reimbursement) calculated to cover Cameron‟s estimated motor vehicle expenses. It is not therefore
paid as a reward for services but in recognition of the costs that are expected to be incurred by
Cameron in providing his services.
Conditions of Work
Allowances paid for conditions of work or for qualifications or special duties, are additional remuneration
paid to the employee for work undertaken or qualifications held. These amounts are an additional
reward for services or qualifications and are not expected to be fully expended in the course of the
employee performing their duties. These allowances therefore attract superannuation. Examples of such
allowances may include a danger, crib or shift allowance, or an allowance paid to the designated first aid
officer or fire warden in your workplace.
Retention Allowance
This allowance is sometimes paid to workers in recognition of the value to their employers. It is paid to
an employee as an incentive to stay with their current employer, rather than retiring or accepting
alternative employment elsewhere. As it is paid as a reward for an employee‟s continuing service to their
employer, retention allowances attract superannuation.
ORDINARY HOURS
As stated, where the allowance according to the above rules is a reward for services (rather than an
amount paid that is expected to be fully expended because of the nature of an employee‟s duties) it will
generally attract superannuation. However, this is subject to an important exception. That is, no
superannuation will be payable if the allowance (or normal salary such as overtime payments for that
matter) relates solely to hours of work other than the employee‟s “ordinary hours of work”. For example,
overtime meal allowances and on-call allowances paid to an employee for making themselves available
to be called into work outside ordinary hours will not attract superannuation.
The term 'ordinary hours of work' is defined in Superannuation Guarantee Ruling SGR 2009/2 as the
hours specified as an employee‟s ordinary hours of work under their employment instrument (i.e. the
relevant award, enterprise agreement, or individual flexibility agreement or a combination of these).
The employment instrument need not use the exact expression 'ordinary hours of work', but it needs to
draw a genuine distinction between ordinary hours and other hours. For example the non-ordinary hours
may be paid at a higher rate.
BOOKKEEPERS KNOWLEDGE BASE
5
Any hours worked in excess of, or outside of, those specified ordinary hours of work are not part of the
employee's 'ordinary hours of work' (and therefore payments in respect of those hours will not attract
superannuation). If the ordinary hours of work are not specified in an employment instrument, the
'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as
determined in all the circumstances. Where it is not possible to determine an employee's ordinary hours
of work, then the actual hours worked should be taken to be the ordinary hours of work.
EXAMPLE
Brad is a hotel chef and is employed under an agreement requiring him to work a minimum number of
hours per week; however additional time may be worked depending on demand. He often works
additional hours, however as the hotel is open 24 hours per day, there is no consistent pattern. The
agreement under which Brad works, does not specify the ordinary hours of work; and all hours are paid
at the same rate.
As his ordinary hours of work are not specified in an employment instrument, there is no clear and
consistent pattern to the hours worked, and all hours are all paid at a flat rate, Brad‟s actual hours
worked will be taken to be the ordinary hours. Therefore, all payments in respect of hours worked would
attract superannuation.
LIVING AWAY FROM HOME ALLOWANCE
Living away from home allowances (LAFHAs) may be paid to an employee who is required to
temporarily relocate (as opposed to just travelling – see later table on page 7) and live away from their
usual place of residence for work purposes.
LAFHAs have always been taxed to the employer under the FBT system and will continue to be taxed in
this way. In August 2012, the Government abandoned its plan to bring LAFHAs into the income tax
system and make them assessable to the employee. For the many bookkeepers who handle payroll this
may have required you to withhold tax from LAFHAs for the fist time. In a last minute „change of heart‟,
legislation was passed in September 2012 which will keep LAFHAs in the FBT system after all.
However from 1 October 2012 to reduce the FBT payable on a LAFHA, the following conditions must all
be met:
1. Employees must maintain a home in Australia that they are living away from because of work.
(This home must be available at all times for their current use and enjoyment i.e. they must not
be renting it out while they are away)
2. The LAFHA must be not have been paid for more than 12 months in respect of a particular
location
3. Employees must provide their employer with a declaration about living away from home (which
provides their two addresses and a statement that they will return to their home address once
they are not required to be living away for work purposes).
As stated, where these three conditions are not satisfied, the employer will not be able to reduce the
taxable value (i.e. the FBT payable) on the allowance. Additionally, in order for the employer to reduce
the FBT on the allowance, employees must substantiate all of their accommodation expenses, and must
also substantiate all of their food/drink expenses above the Commissioner‟s reasonable amounts.
Although the FBT liability will generally be handled by a business‟s accountant, to reduce the FBT
payable, you can assist by:

Ensuring employees provide the (point 3) declaration to the employer before the FBT return is
lodged, and

Reminding employees to substantiate all their accommodation and food/drink costs.
Payment Summary
You should not include LAFHAs on employee payment summaries as they are considered exempt
income for the employee. LAFHAs should only be included on the payment summary if they form part of
the employee‟s reportable fringe benefits amount.
PAYG Withholding
As stated, the plans announced in the May 2012 Federal Budget to bring the LAFHA into the income tax
system and potentially require PAYG withholding were abandoned. LAFHAs will continue to be paid as
a tax-free allowance to the employee (no PAYG withholding will be required).
Superannuation
Superannuation is not payable on LAFHA amounts as they are a fringe benefit.
BOOKKEEPERS KNOWLEDGE BASE
6
OVERNIGHT TRAVEL ALLOWANCE
Travel allowances are often provided to employees who have to travel (and sleep away) from their usual
place of work for short periods (generally up to 21 days).
Travel allowances attract special payroll treatment. Where an employee is paid a travel allowance up to
the reasonable amount set out by the Commissioner each year:



PAYG withholding is only required for the excess over the reasonable amount
The amount only has to be shown on the payment summary if it is in excess of the reasonable
amount (in which case the whole amount of the allowance must be shown)
Superannuation will be payable only if the employee is not expected to fully expend the
allowance.
This contrasts sharply with the payroll treatment of LAFHAs (outlined earlier). Therefore, when handling
payroll, it is important that you can distinguish between these two allowances (they are often confused
with each other as both involve an employee being required to travel and sleep away from home in
order to perform their work).
On the one hand, LAFHAs are paid where an employee has moved and taken up temporary residence
away from his or her usual place of residence so as to be able to carry out their job at the new but
temporary workplace. The employee has a clear intention/expectation of returning home on the
cessation of work at the temporary location (in this sense, the employee is absent for a limited/finite
period of time).
On the other hand, a travel allowance is paid for specific trips because the employee is travelling in the
course of performing their employment duties but has not temporarily relocated as a LAFHA recipient
would. The existing work location continues to be the employee‟s regular place of work. In travelling
away from home, the employee simply takes travel items (such as toiletries and a few changes of
clothes) as opposed to residential belongings such as furniture, as may be the case for a LAFHA
recipient. Employees receiving a travel allowance will also typically use temporary styles of
accommodation such as hotels.
TRAVEL ALLOWANCES VERSUS LAFHA – POINTS OF DIFFERENCE
TRAVEL ALLOWANCE
LAFHA
The existing work location continues to be the
employee‟s regular place of work
The employee simply takes travel items with them
(e.g. toiletries, change of clothes)
The employee has established a second or
alternative work location
The employee effectively takes up temporary
residence away from what is considered their
usual place of residence, and may take residential
belongings such as furniture
The employee has temporarily relocated, and their
family may also join them or visit them
The employee uses longer-term accommodation
while away from home e.g. lease of residential
premises
The employee is staying away to work at an
alternative work location for a significant period,
generally more than one month
The employee (and their family) continues to
reside near the existing work location
The employee uses temporary styles of
accommodation such as a hotel
The employee is away on a specific trip for less
than 21 days
COMMON MISTAKES
Following is a list of common mistakes made when processing allowances, followed by the correct
course of action:
X
When completing the Payment Summary, recording amounts reported at the Allowances label
also at the Gross Payments label

Do not record amounts at the Gross Payments label if they have already been recorded at the
Allowances label
X
When completing the Payment Summary, including LAFHAs at the Allowances label

LAFHAs are exempt income for the employee. LAFHAs should only be included on the
Payment Summary if they form part of the reportable fringe benefits amount. (and, in that case,
only at that label)
BOOKKEEPERS KNOWLEDGE BASE
7
X
Not keeping abreast of changes

The requirement to pay an allowance as well as the amount to be paid is often specified in a
Modern Award (many of which are updated annually). Failing to keep abreast of changes in
Modern Awards can result in incorrect allowance payments. Modern Awards, incorporating the
latest updates, can be accessed at the Fair Work Australia website.
Furthermore, it‟s important to keep abreast of any changes to the cents per kilometre rate for
motor vehicle allowances, and annual changes to the reasonable travel allowance amounts
prescribed by the Tax Office, as changes to these rates can impact the payroll tax treatment
(see later)
X
Paying superannuation on all motor vehicle allowances

Just because motor vehicle allowances are generally taxable, does not mean that they will
always attract superannuation. As outlined earlier, where the nature of the employee‟s duties
makes it likely that the allowance will be fully expended on motor vehicle travel in the course of
their work, then the allowance will generally not attract superannuation.
PAYROLL TAX
Thanks to the harmonisation initiative undertaken by State and Territory Governments, the payroll tax
law as it applies to allowances, is uniform across Australia (note however that the payroll tax rates
themselves do differ from jurisdiction to jurisdiction). Harmonisation in this area is good news as it
eliminates the difficulty of grappling with different payroll tax allowance rules should you have workers
on the payroll who perform their services in different jurisdictions.
Generally, all allowances paid or payable to an employee are taxable for payroll purposes even where
they are paid to compensate an employee for a work-related expense which may be expended by the
employee (e.g. uniform allowances). The only exceptions to this general rule that allowances are subject
to payroll tax, is the exempt amount of a motor vehicle allowance and the exempt amount of an
overnight accommodation allowance. We now detail how to calculate the exempt amounts.
Motor Vehicle Allowance
Motor vehicle allowances are generally paid to compensate employees who use their own vehicle for
work-related purposes. Motor vehicle allowances are typically calculated and paid at either a cent per
kilometre rate, or a flat rate (e.g. $400 per month, regardless of the distance travelled).
Where a cents per kilometre rate is paid, and appropriate records have been kept, working out the
exempt amount is a two-step process. Firstly take the top Tax Office cents per kilometre rate in the
financial year preceding the financial year in which the allowance is paid. (e.g. for an allowance paid in
the 2012/2013 year, the applicable rate would be 75 cents per kilometre; being the top Tax Office rate
prescribed for 2011/2012 – which is the previous financial year).
The next step is to multiply this rate by the number of business kilometres travelled (the result of this
calculation is the „exempt payroll tax component‟). If the allowance is less than the exempt component,
then none of the allowance attracts payroll tax. On the other hand, if the allowance exceeds the exempt
component, then only the amount above the exempt component will attract payroll tax.
EXAMPLE
Barry is a real estate agent who, due to the nature of his duties, is required to undertake extensive workrelated travel during the year. To compensate him for this expense, his employer pays him a cents per
kilometre motor vehicle allowance of 80 cents. During the 2012/2013 year, Barry travelled 3 200
kilometres for work (and therefore received a total allowance of $2 560, being 80 cents x 3 200
kilometres). The exempt component of Barry‟s motor vehicle allowance is $160, calculated as follows:
E=KxR
Where:
E
is the exempt component
K
is the number of business kilometres travelled during the year
R
is the top cents per kilometre rate prescribed by the Tax Office in the previous financial year
K (3 200) x R (75 cents)
= E ($2 400)
Therefore, $160 of the allowance will be subject to payroll tax (being the amount of the $2 560
allowance that is in excess of the exempt component of $2 400).
BOOKKEEPERS KNOWLEDGE BASE
8
Where instead the allowance is paid at a flat rate (e.g. $400 per month regardless of the distance
travelled), the employer must keep records to verify the number of business kilometres travelled during
the year. Records can be kept either in the form of:

Actual kilometres travelled (in which case you will need to retain records of the odometer
readings for the start and end of each journey), or

The 12 week averaging method (where, over a 12 week period, you record the odometer
readings for each business journey, the purpose of each journey, and the total distance the car
travels).
Where such records are maintained, the exempt component of the allowance is also worked out as per
the earlier formula (E = K x R). If you fail to keep proper records under one of these two methods, the
whole flat rate allowance will be subject to payroll tax.
EXAMPLE
Following on from the earlier example, assume instead that Barry‟s employer paid him a flat monthly
motor vehicle allowance of $150 ($1 800 for the year). Provided appropriate records were kept of the
3 200 business kilometres, the exempt component of the flat rate allowance is $2 400 calculated as
follows:
E=KxR
K (3 200) x R (75 cents)
= $2 400
As the amount of the allowance paid ($1 800) is less than the exempt component ($2 400) the whole
amount of Barry‟s flat rate motor vehicle allowance will be exempt from payroll tax.
Where instead the allowance is paid is a combination of both a fixed/flat amount and a cent per
kilometre rate, the total amount that exceeds the combined total of the two exempt components will be
taxable. The exempt component is the exempt fringe benefit component plus the Tax Office cents per
kilometre rate. Again, failure to keep records means that the whole allowance will be taxable.
EXAMPLE (as per Revenue Ruling PTA 005.1)
Total business kilometres travelled during the 2011/2012 year:
Allowance paid for the year:
Flat amount
Rate per kilometre @ 30 cents
10 000
$ 8 000
$ 3 000
$11 000
Less exempt fringe benefit:
Sub total:
$ 3 000
$ 8 000
Less exempt component
(using the 2010/2011 rate of 75 cents x the 10 000 km travelled)
$ 7 500
Taxable portion of motor vehicle allowance
$
500
Overnight Accommodation Allowance
The second category of exempt allowances is an overnight accommodation allowance. These
allowances are paid to cover temporary overnight accommodation costs where an employee, because
of work, is required to travel away from home for short periods. „Temporary accommodation‟ in this
context means:
(a) Accommodation for a continuous period of not more than 21 days, or
(b) Accommodation for a continuous period of more than 21 days where the employee continues
to maintain a domestic dwelling (i.e. their normal residence that they have temporarily travelled
away from) for the purpose of accommodating the employee or their family.
Note the employee must sleep away from home for any exemption to apply.
Overnight accommodation allowances should not be confused with an expense payment fringe benefit
(or a reimbursement). Overnight accommodation allowances are pre-determined per night amounts,
whereas an expense payment accommodation amount is effectively a reimbursement for the exact cost
of being away from home. Overnight accommodation allowances also should not be confused with
LAFHAs (to differentiate, see the earlier table on page 7).
Having determined that the amount is an overnight accommodation allowance, it will attract payroll tax
only to the extent that it exceeds the exempt rate. This exempt rate is outlined by the Tax Office each
BOOKKEEPERS KNOWLEDGE BASE
9
year in a Tax Determination. In this Determination, to determine the exempt rate, you use the lowest
capital city for the lowest salary band for the financial year. If you look at the Determination, for
2012/2013, the lowest salary band is “$104 870 or below”, and the lowest capital city allowance is for
Hobart. For accommodation, the amount prescribed in the Determination is $132 per night.
Aside from accommodation, this Determination also includes reasonable amounts for meals and other
incidental expenses (such as toiletries etc.). These components are also exempt from payroll tax where
they do not exceed the limits set out in the Determination. For 2012/2013, the exempt rates for
food/drink and for incidentals are also the amounts for the lowest salary band (that being $104 870 or
below, and for the lowest capital city (Hobart). The amounts prescribed in the Determination are $98.40
per night for food/drink, and $17.85 per night for incidentals. When these two amounts are added to
accommodation ($132) the total per night exempt amount of an overnight accommodation allowance for
Hobart for 2012/2013 is $248.25. Only amounts per night above this will be liable for payroll tax.
Living Away From Home Allowance
In terms of exemptions from Payroll tax, the other allowance worth noting is the LAFHA. Payroll tax is
payable only on the taxable value of a LAFHA. The taxable value will generally be the amount of the
allowance paid, however this may be reduced where the earlier three conditions on page 6 are met, and
the employee substantiates their allowance expenses (see earlier for this requirement). Thus, where
these conditions are met, the taxable value will be reduced and therefore the extent to which the
allowance is subject to payroll tax will also be reduced. In determining the taxable value of a LAFHA
and any reductions that may apply, we recommend you consult with the business‟s accountant.
Disclaimer—the information contained in this edition was first written in December 2012. Information contained
herein is general in nature and is intended to provide guidance to bookkeepers in providing bookkeeping services for
their clients. It is not intended to be taken as a substitute for you or your clients seeking professional advice in
relation to their own specific circumstances.
Copyright—Except for use with other staff members or contractors of your bookkeeping firm, no part of this
publication may be reproduced without the express permission of Australian Bookkeepers Network Pty. Ltd.
BOOKKEEPERS KNOWLEDGE BASE 10