What is a travel allowance
Travel allowance is a payment made to an employee to cover accommodation, food, drink or incidental expenses they incur when they travel away from their home overnight in the course of their duties. Employees need to keep records of their travel expenses.
When PAYG is withheld
Allowances folded into your employee's salary or wages are taxed as salary and wages and tax has to be withheld, unless an exception applies.
You include the amount of the travel allowance in the allowance box on your employee's payment summary.
When PAYG isn't withheld (the exception)
An exception to withholding PAYG from travel allowance applies if 4 conditions are met:
- You expect your employee to spend all of the travel allowance you pay them on accommodation, food, drink or incidental expenses.
- You show the amount and nature of the travel allowance separately in your accounting records.
- The travel allowance is not for overseas accommodation.
- The amount of travel allowance you pay your employee is less than or equal to the reasonable travel allowance rate.
If the exception applies, you:
- don't withhold tax from the travel allowance
- don't include the amount of the travel allowance in the allowance box on your employee's annual payment summary
- only include the allowance on their relevant payslip.
If the first 2 exception conditions are met but you pay your employee a travel allowance above the reasonable travel allowance rate (condition 4), you need to:
- withhold tax from the amount that exceeds the reasonable travel allowance rate
include the total amount of the travel allowance in the allowance box on your employee's payment summary.
For more information, see TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses.
Allowance for overseas accommodation
You are always required to withhold tax from a travel allowance for overseas accommodation. You must include the amount of the travel allowance in the allowance box on your employee's payment summary.
Reasonable travel allowance rate
Each year we publish the amounts we consider reasonable for claims for domestic and overseas travel allowance expenses to the ATO Legal database. For more information see:
- TD 2024/3 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2024–25 income year?
- TD 2023/3 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2023–24 income year?
How to report allowances
Check the relevant Single Touch Payroll (STP) employer reporting guidelines to see how to report these payments through STP:
- STP Phase 1 employer reporting guidelines – allowances
- STP Phase 2 employer reporting guidelines – allowances