ato travel allowance payg withholding

Allowance for travel (and some common mistakes)

• November 1, 2014

The idea of making allowances to cover the cost of necessary travel by employees is not a new area of tax, but it is becoming increasingly significant, especially with today’s fast-moving and ever more global economy. Businesses are increasingly moving staff around to achieve expansion and build greater ties across greater distances.

It can however be an area of tax law that is still misunderstood by many. First because of recent legislative changes to the LAFHA (living away from home allowance, which we looked at in the previous newsletter) and secondly because so many employees rely heavily on these types of allowances. As travelling for work purposes can affect employees both financially and emotionally, there is plenty of interest in ensuring that employers get it right.

The purpose of both types of allowances is to compensate employees for the additional costs they incur due to being required to travel and/or live away from home as a part of their employment duties. However the fact that there are two types of allowances is a legitimate situation as there are relevant issues, for both employer and employee, that will determine which allowance better suits an employee. Having more than one option means tax outcomes can be tailored to match the circumstances, as opposed to a “blanket” policy or allowance to cover all travelling employees.

Although they are both referred to as “allowances,” they are dealt with by different taxation regimes. LAFHA is dealt with under the fringe benefits tax (FBT) regime and travel allowances are dealt with under the income tax regime. As we have covered LAFHA recently, we will focus on the travel allowance options available (although ask this office if you require more information on the LAFHA).

Travel allowances are paid to employees who are travelling on business but are not considered to be living away from their home. As a general rule of thumb, the Tax Office considers being on the road for 21 days or less to be travelling. Also there is no change of employment location, and generally an employee travelling for business is not accompanied by spouse and children. A travel allowance provided by an employer is not taxed under the FBT regime but may be taxed under the PAYG withholding regime as a supplement to salary and wages.

The Tax Office publishes guidelines each year on what it considers to be reasonable amounts for a travelling employee. These guidelines give a reasonable daily travel allowance amount and take the following factors into consideration:

• destination of travel (broken down into metropolitan cities, country centres within Australia and international countries)
• accommodation
• other incidentals
• employee annual salary (in ranges), and
• specific rates for truck drivers.

Countries other than Australia are split into “cost groups”, with each determining the reasonable amount of the daily allowance. These are determined based on the cost of living in that country and then numbered between cost groups one to six. Cost group one has the lowest daily allowance and cost group six the highest.

The reasonable amounts are intended to apply to each full day of travel covered by the travel allowance, with no apportionment required for the first and last day of travel (ask this office if you are interested in what the reasonable amounts are for 2014-15).

Where the employer has paid the employee less than the Tax Office reasonable amount, then the employer is not obligated to withhold from the allowance nor does the employer have to include the allowance on the employee’s PAYG payment summary for that relevant taxation period.

Where a travel or overtime meal allowance is not shown on the employee’s PAYG payment summary, it does not exceed the reasonable amounts, and has been fully expended on deductible expenses, neither the allowance nor the expenses should be included in the employee’s income tax return. If the employee has not expended the entire travel allowance amount, then both the allowance amount and the deductible expenses should be included in their income tax return.

The employee can claim in their personal income tax return the costs of meals, accommodation and other incidentals they incurred as part of their business travel. Expenses claimed however must have been incurred and must be an allowable deduction. The mere fact that they received a travel allowance does not in itself allow a deduction to be claimed.

Where the employee is claiming no more than the reasonable amounts as per Tax Office guidelines, substantiation of the claim with written evidence is not required. If however, the employee claims more than the reasonable amounts, then substantiation is required for the entire amount of the claim and not just the excess above the reasonable amounts.

Main areas of confusion

Some taxpayers get confused by the interaction between the LAFHA and travel allowances, and in some cases people have tried to claim against the LAFHA where no deduction is available. In fact, if an employee tries to make a claim for travel expenses where a LAFHA has been provided by the employer, they are essentially taking “two bites of the cherry” as they would not have had income tax withheld from the amount, nor have they included the allowance received in their income tax return as assessable income. This is because the employer would have dealt with any tax (FBT) liability on the LAFHA, if there was any FBT payable after available concessions.

Another incorrect assumption is that the substantiation exemption means having no records at all. In addition, where there has been reliance on the substantiation exemption for travel claims, there may still be a requirement in appropriate cases that an employee should be able to produce the following:

• how they worked out their claim
• that the expense was actually incurred
• an entitlement to a deduction (that is, that work related travel was undertaken)
• a bona fide travel allowance was paid; and
• if accommodation is claimed, that commercial accommodation was used.

It is also crucial that an employer is aware of the differences between the two forms of travel allowance, and which one suits the circumstances at hand. Other important factors an employer should consider when determining the correct allowance to give to their employees include:

• the enterprise bargaining agreement (EBA) or employment contract
• the policies and governance for the business
• any industry awards
• the industry standard practices
• the experience and level of the employee
• the employee’s personal situation (that is, with family, house etc)
• any exceptions to the general rules (for example, fly in-fly out employees).

Not only is it essential to ensure the correct classification, but employers and the tax professionals helping them also need to apply the appropriate tax treatment for each allowance. Ask this office for guidance.

Up in the air:  Airbnb and the Tax Office

Global upstart Airbnb is leading a charge with what is best described as open-source citizen subcontracting.  It’s a collectivist, internet-based concept whereby everyday people provide accommodation services as private entities on an ad hoc basis.  Airbnb basically sets up accommodation seekers with ideally placed property owners, making them provisional innkeepers.  The model fosters a personal touch, but its success is driven by the potential to save money by avoiding traditional market channels.  We’re seeing in Airbnb a cultural desire for crowd-funded alternatives.  There’s money to be made, and assessed for tax.  Naturally the Tax Office has been slow on the uptake.

Airbnb’s networking domain is app-based (on your smartphone) and web-based (on your computer).  Rental property owners advertise their properties, stipulating their own personal terms, and accomodation-seekers agree to stay in those properties based on those terms.  There is generally no minimum stay requirement, and the leasers and leasees devise their own personal rental agreement under Airbnb’s guidelines.  It’s most important to note that Airbnb leasers and leasees correspond personally to reach a mutually beneficial agreement.  They work in symbiosis; property owners have neither power nor interest in imposing unattractive fees and rigid terms.

The Tax Office’s challenge is creating tax rulings based on the largely undefined (read “informal”) terms of engagement with Airbnb.  If the Tax Office does not understand the terms under which citizens become single-serving subcontractors for these companies, they can’t lay down appropriate tax obligations.

In this vacuum of legislative silence sits the matter of assessable income. Without a specific ruling distinction, it has the potential to complicate Airbnb’s operation in Australia.  Consider the following with regards to an Airbnb user (henceforth Airbnb-er to us) with a property to offer paying guests.

Say the property was bought as a rental property prior to and independently of Airbnb engagement.  It’s not the primary place of residence for the soon-to-be Airbnb-er, and would otherwise be let as a means for generating income.  Subsequent leasing out to Airbnb users in this case may be seen as a venture for profit, and its proceeds would likely be assessable, just as those from traditional rental arrangements outside of the Airbnb model would be. But Airbnb rental arrangements are by their nature short-termed, and they don’t always involve rental properties exclusively.  This may change the Tax Office’s scope for assessing earnings.  It’s all a question of leaser intent.

Consider the leasing of holiday houses through Airbnb (meaning a holiday house bought with the intention of seasonal use by the owner, and not for leasing out for profit).  As far as tax law goes right now, letting out a private residence (a holiday house in this case) would likely equate to entering into a boarding-style arrangement.  Boarding-style lease agreements can produce income that can be assessed — but Airbnb’s model complicates things.

The Tax Office’s ruling on rental properties is holey to say the least, but provides a general reference point for the letting of holiday houses as well as boarding-type arrangements.

It defines a holiday house as “located in holiday resort areas or away from mainstream residential areas”.  It understands that if such residences are let, they’ll be let short-term — presumably the length of a holiday, maybe a few weeks, months etc.  The ruling says that if owners of such properties let to friends or relatives, “at no or minimal cost”, any resulting income would not be assessable. This precludes an Airbnb-style arrangement, because Airbnb-ers and Airbnb-ees are not friends or relatives.  Objectively, though, the Tax Office would have a hard time determining relational connections between Airbnb-ers and ‘ees if their rental agreement is ultra-short term and, for the Airbnb-er, economically irrational.

For our purposes, the question is again about intent:  Are Airbnb-ers leasing their private residences to Airbnb-ees to achieve profit?  For example, consider the following scenario.

Alfred owns a holiday house in Lakes Entrance.  It costs Alfred $300 a week to maintain the property. Ten months out of the year, Alfred doesn’t visit his property, so he advertises it on Airbnb.  He figures he may attract a leasee during the winter, and the advertisement is low-risk.

Airbnb-ee Sam expresses interest in renting Alfred’s property for a week while doing business in a nearby town.  Sam proposes a $200 a week payment for staying at Alfred’s property.  Alfred agrees; he knows that Sam is paying less than the $300 weekly cost of owning the property, but sees the benefit in a once-off contribution at a time of year when he wouldn’t use the property anyway.  As a result, Alfred would only wear a $100 cost for his property for that week.  Alfred hasn’t achieved a profit per se, but is receiving money that eases his expenses.

Alfred is receiving income, yes, but that income may not necessarily be assessable if it does not adhere to ordinary concepts.  The money is — given the period of Sam’s stay, in an off-season period of the year — not a regular or recurrent payment (conversely, a traditional holiday rental arrangement would be considered regular).  This alone does not preclude it from being ordinary income.  Sam’s payment may be treated as ordinary income — albeit income generated as an isolated transaction outside the ordinary course of business — if Alfred’s purpose was to make a profit.  But we’ve established Alfred is not making a profit from his dealings with Sam.  As their arrangement stands, Alfred’s $200 income would be counted as ordinary.  His motive, as far as the Tax Office would be concerned, is economically irrational.

Airbnb allows prospective Airbnb-ers to let part of their primary place of residence, too.  Now we are looking at how the Tax Office’s ruling on boarding-style arrangements fits in with the Airbnb model.  If an Airbnb-er lets a bedroom of their house to an Airbnb-ee at a minimal rate, the income from that arrangement may be assessable. The Tax Office is chiefly concerned with whether the residence owner benefits from the arrangement or not.  For example, consider the following.

Deborah’s primary place of residence has two bedrooms.  She sleeps in one, and the other is unused.  The bedrooms each take up one sixth of the total floor space of the residence. She decides to advertise her spare bedroom on Airbnb to attract boarders at a low rental rate.  She figures that if she gets periodic, short-term Airbnb-ees to stay in the otherwise empty second room, she’ll make a little money to help pay her utility bills.

Airbnb-ee Charlene stays in Deborah’s second room for two weeks.  She pays $50 per week.  By the end of the fortnight, Deborah has made $100.  She puts this $100 toward her $400 electricity bill for that month, so her electricity expense has thus dropped to $300. Deborah doesn’t attract another Airbnb-ee for the rest of that financial year.

As with Alfred’s scenario, Deborah’s $100 income may not be ordinary because it is a once off, non-recurring payment.  But it is clear Deborah benefited marginally from sub-letting to Charlene for the two-week period.

However, with regard to the main residence exemption, we should consider that when Deborah comes to selling her property she may be subject to capital gains tax.  This applies in the case that Charlene’s payment is counted as assessable income.  The room Charlene rented represents only a part of Deborah’s residence, and Charlene only stayed for a limited period in comparison to Deborah’s total ownership period, so her capital gains tax liability may be limited to that space and that length of lease.  In that case, the reduction of the main residence exemption will be minimal.

Intent must be weighted again, too. If Deborah listed her property on Airbnb as available for leasing over, say, two years, but still attracted only one Airbnb-ee over that period, the Tax Office may construe that Deborah sought to make a profit by advertising for so long regardless of how much money she actually made.  We know that with matters of intent, the Tax Office is trying to make concrete out of sand.  Airbnb-er profit motives, fleeting though they may be, will most likely be determined on a case-by-case basis.

Airbnb’s model is confusing because short-term open-source rental arrangements have not been broached in concrete legislative terms.  The Tax Office can really only assess Airbnb proceeds where they fall in with traditional rental arrangements.  Traditional rental arrangements may occur between Airbnb users, but the take-home point is that within a collectivist business network clients and proprietors work in symbiosis. They work in financial tandem, deciding upon rates and tax interpretations (see the “friends and relatives” clause) for mutual benefit.  There’s no standard Airbnb arrangement, no algorithm for payments, no uniform cases to set precedence.  Assessability is up for dispute.  And the Tax Office, it seems, has no interest in beating Airbnb and its trailblazing contemporaries to the punch.

Firms warned of audits on income splitting

Draft guidelines have been released by the Tax Office on how the general anti-avoidance legislation should apply to professional firms that allocate profits to individual professional practitioners with proprietorship in the firm. Firms potentially affected include those providing services in the accounting, architectural, engineering, financial services, legal and medical professions.

Professional firms can be structured in a range of ways, depending on the choices made by the owners, but the Tax Office has warned that in some cases the way a business is structured “can be used in ways that give rise to different tax consequences and resulting tax compliance risks”.

Its concerns about tax compliance in these instances are based on where arrangements are set up so that a practice’s income is treated as being derived from the business itself, even though the source of that income is actually the provision of professional services by individuals.

It said this is particularly the case where:

• the level of income received by the practitioner, whether by way of salary, distribution of partnership or trust profit, dividend or any combination of them, does not reflect their contribution to the business and is not otherwise explicable by the commercial circumstances of the business
• tax paid by the practitioner and/or associated entities on profits of the practice entity is less than that which would have been paid if the amounts were assessed in the hands of the practitioner directly
• the practitioner is, in substance, being remunerated through arrangements with their associates, and
• the structure does not provide the practitioner with advantages, such as limited liability or asset protection.

Experts comment that the release of draft guidelines before they are finalised may be a signal that the Tax Office intends to commence compliance activity, including audits, of practitioners for the 2014-15 income tax year. The guidelines (ask this office if you’d like to know more) potentially have wide application.

The Tax Office guidelines apply if:

• an individual professional practitioner provides professional services to clients of the firm, or is actively involved in the management of the firm and, in either case, the practitioner and/or associated entities have a legal or beneficial interest in the firm, and
• the firm operates by way of a legally effective partnership, trust or company, and
• the income of the firm is not personal services income.

High and low risk

The Tax Office says taxpayers will be rated as low risk and not subject to compliance action if they meet one of the following guidelines regarding income from the firm (including salary, partnership or trust distributions, distributions from service entities or dividends from associated entities):

• the practitioner receives assessable income from the firm in their own hands as an appropriate return for the services they provide to the firm. The benchmark for an appropriate level of income will be the remuneration paid to the highest band of professional employees providing equivalent services to the firm, or to a comparable firm
• 50% or more of the income to which the practitioner and their associated entities are collectively entitled (whether directly or indirectly through interposed entities) in the relevant year is assessable in the hands of the practitioner
• the practitioner, and their associated entities, both have an effective tax rate of 30% or higher on the income received from the firm.

Where none of these guidelines are satisfied, the Tax Office said the practitioner’s arrangement will be considered higher risk, with increased chance of compliance action. The lower the effective tax rate of an arrangement, the higher the Tax Office will rank the compliance risk.

Time is running out to disclose offshore income

The Tax Office has issued a final warning — taxpayers with undeclared offshore assets or income are running out of time and need to act now if they want to take advantage of an amnesty that runs out by December 19.

The Tax Office said that the rare opportunity provided by its offshore voluntary disclosure initiative is unlikely to be repeated. Its “Project DO IT” (disclose offshore income today) allows eligible taxpayers to come forward and voluntarily disclose unreported foreign income and assets, such as amounts not reported or in tax returns.

These can include:

• foreign income or a transaction with an offshore structure
• deductions relating to foreign income that have been claimed incorrectly
• capital gains in respect of foreign assets or Australian assets transferred offshore
• income from an offshore entity that is taxable in your hands
• offshore deductions relating to domestic income.

The Tax Office said that coming forward now, ahead of a global crackdown on people using international tax havens, is the last chance for many taxpayers to escape hefty fines. With the increased global exchange of financial information, it said that it is almost certain that taxpayers doing the wrong thing with their international assets will be caught.

“Increased international cooperation means the net is closing in on tax evaders around the world,” the Tax Office said in a statement. “In recent years, information sharing between countries has increased significantly. Banking data is being exchanged routinely and automatically, and the G20 is promoting global tax transparency. Even countries previously thought of as tax havens, such as Switzerland and the Cayman Islands, are working with tax authorities around the world to increase financial transparency.”

Under the initiative, taxpayers have an opportunity to avoid steep penalties and the risk of criminal prosecution for tax avoidance. By voluntarily coming forward before the deadline, taxpayers can also limit assessment to only the last four years and a shortfall penalty of 10%. Ask this office for guidance if you, or anyone you know, would like to take advantage of the offshore income disclosure amnesty.

Solar panels for your business: Don’t forget the tax consequences

If the prospect of punishing electricity bills continuing to arrive has led you to think about installing solar panels at your business premises, further considerations could include the fact that not only will you be helping the environment, but you could also be helping your own bottom line — and not just through reduced energy bills. There can also be some positive tax outcomes that should flow through to ease your energy impost. The outcomes, while relying to some extent on a taxpayer’s specific circumstances, can certainly go some way to reducing operating expenditure.

The two main types of taxpayer who stand to be able to use the existing tax guidances to their benefit when making an investment in solar panels are businesses and investors. The problem however, and which theoretically has resulted in these strategies not being more widely utilised, is that the tax laws as they stand have very few provisions that specifically address the treatment of solar panels for tax purposes.

There are however some public documents and interpretive decisions that are able to point taxpayers in the right direction. Importantly, as these are Tax Office guidances, they serve to protect a taxpayer from penalties where they are relied upon in good faith, should any of the principles outlined be subsequently proven to be not applicable.

Assessable income and deductions

Before the introduction of the renewable energy target, the government had a scheme that offered cash rebates through issuing “Renewable Energy Certificates” based on the amount of solar panels that were bought and installed. On the back of this scheme, the Tax Office released an interpretive decision that makes it clear that Renewable Energy Certificates (RECs) will be considered as “assessable recoupments”. This basically means that where there is a reimbursement of costs (such as legal fees if you win a court case, to give another example), this is to be considered as assessable income.

The impact of following this interpretation is largely on a taxpayer’s cash flow. When looking at the price of solar panels, an invester or business taxpayer should be aware that the rebate should be included in assessable income for the year of purchase.

The other significant inflow that will need to be addressed is the recurrent feed-in tariff — in other words the amount a power retailer pays to the owner of a solar panel installation for the power generated from their unit in any given period. Generally, this feed-in tariff will be viewed as assessable income, and mostly likely as a form of ordinary income.

The cost of electricity for a business represents an allowable deduction, much like other relevant taxpayers for their income generating property. It is important to note that for taxpayers with solar panels, this gross deduction will need to be offset by the incomings derived by the feed-in tariff provided by power retailers.

Clearly interest on loans taken to fund the purchase of solar panels used on premises that are used wholly to produce assessable income will be deductible.

The two main considerations that will arise when thinking about solar panels for investors as opposed to businesses are the application of depreciation provisions, and how GST will apply to various transactions.

CGT and depreciable assets

The Tax Office interpretation is that although a Renewable Energy Certificate is a CGT asset, the assignment of that certificate to the installer of solar panels will not result in a CGT event. Instead an assessable recoupment will arise, as discussed earlier, which will flow through to assessable income.

The Tax Office makes it clear that it considers a small energy generation unit or a solar water heater to be a depreciating asset. This means that a deduction is available where that asset is installed on a property wholly used to produce assessable income through rent or through the operation of a business. Importantly, the cost for the purposes of this deduction would be the gross price of the unit. In other words, the cost for depreciation purposes would be the amount the taxpayer pays the installer to install the unit plus the rebate they have received (and included in assessable income).

So while the saving in energy costs is a big consideration, the value of this depreciation deduction should be factored in by a business or investor when analysing whether the installation of this type of asset makes economic sense.

Whether a taxpayer makes taxable supplies such as those typically produced in a majority of businesses, or input taxed supplies such as rent from residential property, will largely drive the GST consequences of acquiring a solar unit.

A business taxpayer who wholly makes taxable supplies from the use of premises is able to claim input tax credits associated with the purchase of a solar unit. However, where a taxpayer is making supplies of residential accommodation and receiving rent, they will typically not be able to claim GST credits.

Bringing it all together

One way to see how a typical scenario would play out is to look at a hypothetical case study; in this case let’s look at the Smith family, which has a family company that owns a property, which it uses in a warehouse and distribution business.

The property is solely used to derive assessable income. The managers of the business have recently complained that their electricity bills are continually rising and that if solar panels are installed this could provide significant cost savings, as energy use is predominately at peak hours during the day.

The Smiths commission their accountant to produce an economic analysis and feasibility study to examine this proposal. They ask that he provide some guidance in relation to how income tax and GST will affect the economics of this proposal. As explained above, in the absence of direct Tax Office provisions that specifically address the treatment of solar panels, the accountant conducts his analysis in accordance with general principles.

To start with, he looks at the business’s current electricity tariffs, including the previous bill. Then he works out how this would change with installation of the solar panels. His analysis is laid out in the table below and the flow of transactions is shown in the chart at the bottom of page 7.

It is determined that a cash flow saving of $3,600 will be made in the first financial year of installation. The accountant also makes it clear that the deduction of the solar panels for depreciation purposes will persist, however no additional tax will be charged on the rebate (as this is a one-off item on the purchase of the panels).

The Smiths note that the company’s cash flow in year one will improve by a small amount, and the company will thereafter enjoy lower electricity bills and also the benefits of additional depreciation deductions.

Travel allowances or LAFHA: Which applies to you?

Travel Allowance or living-away-from-home allowance (LAFHA)? Understanding the difference between these two allowances can be difficult, particularly when there is the perception of an overlap. The allowances are in fact different and have different consequences for the person receiving them.

An amount paid by your employer to cover expenses such as accommodation, food, or drinks while you travel for business is typically know as a travel allowance. There is also another type of allowance, called the living-away-from-home allowance (LAFHA), which compensates you for additional expenses when you are required to live away from home due to work duties. So, what is the difference between the two?

Travel allowances are assessable income and PAYG withholding may apply. Any expenses incurred on meals and incidental expenses may be deductible against the allowance if certain criteria are met. Living-away-from-home allowance, however, is subject to Fringe Benefits Tax (FBT) and is non-assessable, non-exempt income. Costs of meals and incidental expenses will not be deductible since you are living away from home and not travelling.

There are no specific set criteria to know whether you are receiving a travel or a LAFHA allowance. The circumstances of each case will determine which one is more appropriate. However, there are several factors that the ATO uses to determine which allowance will apply.

Usually, your employer should tell you which allowance you’re getting, and a big clue is contained in your payment summary. Travel allowances are usually shown in the allowances section of the payment summary and contribute to your overall taxable income and affect the amount of Medicare levy payable. LAFHA is usually included in the reportable fringe benefits section and does not contribute to your overall taxable income or affect the amount of Medicare levy payable.

If you receive a travel allowance, expenses can be deducted without documentary evidence where it is considered by the ATO to be “reasonable”. However, if you have a lot of expenses that may go over the reasonable amount set by the ATO, it would be wise to keep documentary evidence, such as receipts and supporting evidence (eg, bank or credit card statements).

Want to find out more?

Do you want to know if your income or other government benefits will be affected by the allowance you receive? Ensure that you don’t get a big surprise when your tax is due. Talk to us about this today.

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Changing a withholding cycle

This information will help you understand the pay as you go (PAYG) withholding cycle changes.

Last updated 6 April 2021

The pay as you go (PAYG) withholding cycle determines how often you need to report and pay the withholding amounts to us.

Where an employer's annual withholding amount is:

• $25,000 or less (small withholder status) – you are required to notify and pay quarterly
• more than $25,000 and up to $1 million (medium withholder status) – you are required to notify and pay monthly
• more than $1 million (large withholder status) – you are required to pay within six to eight days of a withholding event taking place, such as when staff are paid.

The quickest way to change a withholding cycle is to make the request online through Online services for business or Online services for agents.

Find out about:

Requesting a change

Cycle change as a result of compliance activity, ato annual review, request to remain on a lower withholding cycle.

You or your registered tax or BAS agent can request a change to your withholding cycle if your annual withholding amounts change. You can:

• select Communication , Secure mail then new
• select Pay as you go from the topic list
• select the relevant subject
• phone us so we can discuss your circumstances with you.

If you don't have access to our online services, you can apply in writing, giving detailed reasons to support the request, and send it to  

Australian Taxation Office PO Box 3373 PENRITH  NSW  2740

When you write to us we will consider your request and send you a notice advising you of the outcome of your request.

If your request is not approved, you can object to this decision .

We may change your withholding cycle as a result of an audit or other compliance activity.

We consider the following matters when making a determination:

• The total amounts you are likely to withhold in the next 12 months.
• The extent, if any, to which you make or receive withholding payments that were previously made or received by another entity.
• Any failure to comply with obligations under the withholding rules.
• Any other matter considered relevant.

If we make a determination to upgrade your withholding cycle, we will issue a written notice advising you of the change and the date it will come into effect.

If you do not agree, you can object to the determination to upgrade your withholding cycle.

We will review your withholding payments each financial year to check if your withholding cycle needs to be changed.

We will write to you to upgrade your withholding cycle if your annual withholding payments have increased. Your new withholding cycle will be determined by your new withholder status (medium or large).

We will allow time for you to change to the new payment cycle before your first payment is due for the new financial year.

You can't object to this notice. However, if you disagree with our decision, you can ask to stay on your existing cycle if you estimate your future year's withholding amount to be within your withholding status threshold.

You or your registered agent need to send your request to us within 14 days of receiving our letter.

• Download and complete the Request to remain on a lower withholding cycle (ATO initiated PAYG withholding cycle change) form (NAT 75075) (PDF, 126KB) This link will download a file

Submit your request online through Online services for business or Online services for agents secure mail options:

• select Communication then Secure mail
• select the Pay as you go topic
• select the subject Withholding – ATO cycle change letter received – request to remain on current cycle
• complete the relevant fields and attach the completed Request to remain on a lower withholding cycle (ATO initiated PAYG withholding cycle change) form.

If you don't have access to our online services you can:

• fax your completed form to 1300 730 298
• apply in writing and send it to

Australian Taxation Office PO Box 1129 PENRITH  NSW  2740

Note: When you apply in writing or fax, the form must be placed as the front page.

• Object to an ATO decision

We may approve a request to remain on a lower withholding cycle if you meet any of these circumstances. You:

• are a not-for-profit organisation with limited resources, such as a small parish within a religious institution
• are involved in seasonal work, for example, fishing or farming activities that only occur for part of each year
• will cease trading during the next financial year
• only make withholding payments for part of the year, and for the majority of the year you have nil withholding amounts to notify and pay
• have fluctuations in income due to uncertainty of contracts in certain industries
• need to make a one-off royalty payment for the year under consideration
• are currently affected by a natural disaster.

We will not approve a request to remain on a lower withholding due to:

• the remote locality of the business
• cash flow difficulties caused by the change to a more frequent reporting and payment cycle
• additional costs for administration, including set-up costs and ongoing costs
• you only having one payee
• the person that completes the activity statement travelling frequently
• computer or systems incompatibility.

These reasons are not considered sufficient to allow you to remain on a lower withholding cycle.

If you experience difficulty lodging your activity statement or paying amounts by the due date, you should contact us immediately to discuss your options.

• Help with paying

Withholding Allowances and Reimbursements

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.

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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Have you made payments to non-residents?

If you make interest, dividend or royalty payments to non-residents, you may need to pay and report withholding tax.

Published 19 May 2024

Taxpayers who have paid interest, dividends or royalties subject to withholding tax, to a non-resident, have an obligation to:

• lodge a Pay as you go (PAYG) withholding from interest, dividend and royalty payments to non-residents - annual report by 31 October each year and/or
• lodge an Annual investment income report by 31 October each year, if you're an investment body making interest payments to non-resident investors (or lodge a nil return ), and
• pay withholding tax to the ATO, unless a withholding exemption or tax treaty relief applies.

If you're in our Medium public and multinational business engagement program and have made overseas payments to non-residents, we may contact you about your PAYG withholding and reporting obligations.

To prepare, you should review your records to ensure you've lodged any overdue annual reports, correctly classified and claimed deductions in your tax return, withheld the correct amount of tax, and paid that amount to us. Engage with us if you've made an error by lodging a voluntary disclosure .

We'll also be focussing on arrangements where:

• entities defer their interest to avoid or defer withholding tax , while continuing to claim income tax deductions on an accrual basis
• offshore related entities are used to facilitate the avoidance of withholding tax in relation to interest expenses deducted against Australian-sourced income and paid to non-residents.

For more information about what we focus on, see Non-resident withholding tax – interest, dividend or royalty .

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What you need to know about travel allowances and your tax return

by Quinns_News | May 18, 2011 | Accounting News | 2 comments

In certain roles and industries, as defined by your employer, you may be required to travel in order to carry out particular tasks. In such circumstances, it is likely that you will be provided a travel allowance in addition to your regular wage or salary package.

A travel allowance is paid to you as an employee to cover losses or outgoings that are incurred when you travel away from your ordinary residence in the course of your duties.

Each year, the ATO publishes a determination setting out the amounts considered ‘reasonable’ for claims for domestic and overseas travel allowance expenses. For example, the reasonable overtime meal allowance for the 2009-10 year is $24.95 per meal.

Travel allowance expenses include:

•   accommodation •   meals •   expenses incidental to travel. For example, car, travel and transport allowances, including reimbursements of car expenses calculated by reference to the distance travelled by the car, such as ‘cents-per-kilometre’ allowances

They are set out for various travel destinations and employee categories and the rates shown for domestic travel apply only for stays in commercial establishments such as hotels, motels and serviced apartments. If a different type of accommodation is used, the rates do not apply.

If you receive an allowance you may be able to claim a deduction for your expenses covered by the allowance but only to the extent that you actually incurred those expenses in producing your employment income.

Your employer is required to withhold part of your pay for PAYG reasons if you are expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance; or if the amount and nature of the allowance is shown separately in your employer’s accounting records.

If the allowance is paid at the rate equal to or below the ‘reasonable travel allowance’ rate, and the allowance is separately accounted for, no PAYG withholding is necessary. In addition, the travel allowance does not need to be shown on your payment summary.

Alternatively, if the allowance is paid above the ‘reasonable travel allowance’ rate (in total), your employer is required to withhold PAYG from the amount over the reasonable allowances amount. The total amount of the allowance should be included on your payment summary in the allowance section/box.

Where the deductible expense is less than the allowance received, you must show the allowance as assessable income in your tax return, and claim only the amount of the deductible expense incurred. For example, if you received a $500 allowance for accommodation on a work trip, yet you only spent $300, you should include the whole amount of the allowance ($500) in your assessable income when preparing your tax return, but then claim a deduction of $300.

If the cost of accommodation, meals and incidentals exceed the amount of travel allowance received, you will need to keep documentary evidence for those particular trips during the financial year. With these costs, you can either:

•   claim the actual expenses incurred by including the amounts of travel allowance for which excessive expenditure is being claimed and claim a deduction for the corresponding expenses incurred in your income tax return •   claim nothing, if the travel allowance is not recorded on your payment summary. There is no need to include the total amount as assessable income in your income tax return and, therefore, no need to claim a reciprocal deduction.

If the travel allowance is recorded on the payment summary, you will need to include the amount in your assessable income and claim either:

•   the expenses you incurred (that can be substantiated with receipts or other documentation) or •   the ATO’s reasonable travel amounts.

If you received a travel allowance or an overtime meal allowance paid under an industrial law, award or agreement you do not have to include it on your tax return if:

•   it was not shown on your payment summary •   it does not exceed the Commissioner’s reasonable allowance amount, and •   you spent the whole amount on deductible expenses.

It is important to be aware that the mere receipt of an allowance does not entitle you to a deduction. Also, expenses incurred by travelling between work and home everyday are not an allowable deduction unless exceptional circumstances exist.

Since you are not always guaranteed to be able to claim a deduction for your allowances it is important you seek the advice of a professional before lodging your tax return. Here at The Quinn Group our experienced team of tax agents and accountants can assist you in legally minimising your tax. For more information submit an online enquiry or call us on 1300 QUINNS (7854 667) or on +61 2 9223 9166 to book an appointment.

during the past year I was sent to Canberra from Wollongong for work, the company paid the accomodation costs and paid me $75 a day for my meals and no incidental allowance, the cost of meals and incidentals was slightly more than the allowance paid but below the reasonable amount set out inT/D 2011/17, can I claim the difference?

Please can somebody advise me as to whether my employer should pay me for petrol costs when I use my car for work purposes. They do not pay me anything extra at present and although I am only travelling 10-15km a day for them I feel that they should be reimbursing my costs. Hope somebody can help. Gill

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