Allowances and reimbursements
Generally allowances are taxable in full. However, there are four exceptions:
1. Accommodation allowances
An accommodation allowance applies where an employee is paid an allowance for being temporarily away from home. The allowance covers their meals, incidentals and accommodation.
Only amounts paid in excess of the prescribed rate are to be included in taxable wages. The prescribed rate is equal to the Australian Taxation Office’s (ATO) daily travel allowance rate for the lowest capital city for the lowest salary band. Refer to the
ATO website for additional information.
Motor vehicle allowances are paid to compensate employees who use their own vehicles for business purposes. These allowances are generally paid on a per-kilometre rate, or a flat-rate basis.
Note: As at 1 July 2016, section 29 of the Payroll Tax Act 2008 was amended to ensure that the exempt component of motor vehicle allowance is available to Tasmanian employers by aligning the Act with changes to the
Income Tax Assessment Act 1997 (Cwth).
cent per kilometre rate is used, the rate is determined and adjusted each year by the ATO. Any amount paid in excess of this rate must be included in the taxable wages total.
Generally, the full amount of the motor vehicle allowance must be included in the total taxable wages if the allowance is paid as a flat rate. However, the exempt component may be calculated and deducted where the employer produces records to verify the number of business kilometres travelled.
If a motor vehicle allowance is paid as a combination of a fixed amount plus a kilometre rate, the total amount of the allowance that exceeds the exempt component will be taxable.
2. Meal and incidental allowances paid up to the Australian Taxation Office’s daily substantiation limits
Where an employee is required to be away from his/her home for work purposes and the employer pays an allowance for meals and incidentals, the amount paid up to the ATO’s daily limit for meals and incidentals is exempt from payroll tax. The ATO’s daily limit is available on the
3. Living away from home allowance
A living away from home allowance is a fringe benefit. Therefore the value for payroll tax purposes is the value determined in accordance with the
Fringe Benefits Tax Assessment Act 1986 (FBTAA). If the allowance does not qualify as a living away from home allowance benefit under the FBTAA, it will be treated similarly to an overnight accommodation allowance.
4. Reimbursements of expenses
A reimbursement is not an allowance and therefore is not taxable. To be considered a reimbursement, a payment must be:
incurred by an employee in the course of the employer’s business;
a precise amount whether as a pre-payment or reimbursement; and
be supported by receipts that verify the full amount paid.
If a payment does not conform to these characteristics, it is not a reimbursement and will generally be taxable in full.
Refer to the payroll tax