Allowances

Allowances paid to employees are liable for payroll tax.

You may be able to claim an exemption up to a certain amount on:

• motor vehicle allowances
• accommodation allowances
• living away from home allowances
• direct reimbursements against a receipt.

For more information on allowances and reimbursements, read Revenue Ruling PTA 011 and our common errors page.

Motor vehicle allowance

A motor vehicle allowance is paid or payable to an employee to compensate them for any business use of their own private vehicle.

For real estate professionals, refer to Revenue Ruling PTA 025.

The allowance can be paid on a per kilometre basis, as a flat or fixed amount, or a combination of both.

Allowance paid on a per kilometre basis

Car expense payments paid per kilometre are not subject to payroll tax.

Allowance paid as a flat or fixed amount

Generally, if the allowance is paid at a flat rate, the full amount is liable for payroll tax.

However, if you can produce records to verify the number of business kilometres travelled, an exempt component can be calculated and deducted. If you have not kept records, the total allowance is liable.

You must record business kilometres using either the continuous recording method or averaging method:

1. Continuous recording - you must record the:
   • odometer readings at the start and end of each journey
   • purpose of the journey
   • total number of business kilometres travelled during the financial year.
2. Averaging method - you must calculate the vehicle's business use over a continuous period of at least 12 weeks. During the 12 week period you must record the:
   • odometer readings at the start and end of each business journey
   • purpose of each business journey
   • distance of all business journeys travelled during the period
   • total distance travelled by the vehicle during the averaging period.

Example - averaging method

Driving Pty Ltd uses the averaging method to calculate John’s exempt kilometres for October 2018. John’s log book from 1 July 2018 to 23 September 2018 shows that he travelled 50,000km. The business portion was 30,000km. In October, John travels 20,000km in total and receives an allowance of $20,000.

• John's percentage of business use is 30,000km / 50,000km = 60%
• Exempt kilometres for October is 20,000km × 60% = 12,000km
• Using the exempt rate of $0.68, Driving Pty Ltd could receive an exemption on an allowance of $0.68 × 12,000km = $7,920
• Therefore, Driving Pty Ltd only needs to include as taxable wages $20,000 – $7,920 = $12,080.

Allowance paid as a fixed amount plus a rate per kilometre

If payment is a combination of a fixed amount plus a kilometre rate, the amount of the allowance that exceeds the exempt component is taxable.

You can find out the ATO exempt rates for previous periods on the rates and thresholds page.

For examples, refer to our case studies page.

Overnight accommodation allowance

An overnight accommodation allowance is paid to cover the costs of temporary accommodation if an employee has to stay away from home as a consequence of employment.

Temporary accommodation, in this case, means accommodation for a continuous period of:

• no more than 21 days
• more than 21 days where the employee continues to maintain a domestic dwelling to accommodate the employee and/or his or her family.

Overnight accommodation allowance is only subject to payroll tax if it exceeds the exempt rate.

Different rates apply for truck drivers, read Revenue Ruling PTA 024.

Living away from home allowance

Living away from home allowances (LAFHA) are fringe benefit. The value if LAFHA for payroll tax purposes is the value determined in line with the Fringe Benefit Tax Assessment Act.

If the allowance does not qualify as a LAFHA under the FBT Act, it will be treated the same as an overnight accommodation allowance.

For more information, read Revenue Ruling PTA 005v2.