TAX ADVANTAGED ALLOWANCES

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 claimed as a tax deduction by the employee – for example, travel between work sites.

Tax Advantaged Allowances

The following allowances receive specific tax treatment, which may be favourable, or at least reduce the tax that would otherwise be payable on income which is spent on deductions associated with earning taxable income.
 
ATO Reasonable Travel Allowances
Reasonable allowance expense amounts for each year are set out in an annually updated Tax Determination covering:
    • Overtime meals
    • Domestic travel
    • Employee truck drivers
    • Overseas travel
    • Office holders covered by the Remuneration Tribunal
    • Federal Members of Parliament
Living Away From Home Allowance (LAFHA)
The tax exempt components of a LAFHA are made up of reasonable food and accommodation costs less the statutory allowance amounts based on the members of your family.

 

Award Transport Payments
Payments made under an industrial law or award that was in force on 29 October 1986.

 

Overtime Meal Allowances

With some exceptions, an overtime meals allowance should be declared as income, and subject to conditions, may be claimable as a tax deduction. You can claim a deduction for overtime meals without getting written evidence, if all the following apply, you:

    • Get paid and overtime meal allowance under an industrial instrument (such as an award)
    • Buy food and drink on overtime
    • Only claim up to the reasonable allowance expenses amount.

 

PAYG Withholding Variation: Allowances
A regulation made under the Taxation Administration Act 1953 provides that there is no requirement to deduct tax from certain allowances associated with the tax deductible expenses of an employee.

 

Truck Driver Overnight Allowance
Long distance truck drivers in receipt of an allowance may claim for food and drink up to the reasonable limits below. The amount for each meal is separate and can’t be combined into a single daily amount or moved from one meal to another.
    • $24.25 for breakfast
    • $27.65 for lunch
    • $47.70 for dinner
No Allowance Received

If the employee long distance truck driver does not receive a bone fide travel allowance then full substantiation applies.  The reasonable daily travel allowance rate cannot be used.  Owner-drivers must also substantiate all claims.

 

Summary
The travel allowance MUST BE a Bona fide travel allowance
A ‘bona fide travel allowance’ is an amount that could reasonably be expected to cover accommodation, or meals or expenses incidental to travel.  This does not require that the amount paid by the employer must equate dollar for dollar to the employee’s actual expenditure.  However there must be relativity between the amount of the travel allowance and the purpose for which it is said to be paid.