Withholding for allowances

Overview

The correct withholding treatments and reporting requirements for various allowance types are listed in the tables below. The tables address the requirements for both:

Single Touch Payroll (STP) Phase 1 pay event reporting
payment summaries.

You must follow the relevant withholding and reporting requirements to allow your employees to correctly complete their income tax return.

For reporting of allowances in STP Phase 2, go to STP Phase 2 employer reporting guidelines.

Types of allowances and how they're treated

Table 1a lists types of allowances an employee might receive and describes how they are treated. You need to withhold for these allowances.

The employee is expected to incur expenses that may be claimed as a tax deduction at least equal to the amount of the allowance. The amount and nature of the allowance is shown separately in the accounting records of the employer.

Table 1a* – Types of allowances an employee might receive
Allowance type	Examples	Include on payment summary?	Part of OTE? Does SG* apply?
Working conditions, qualifications or special duties	Crib, danger, dirt, height, site, shift or travelling time Trade, first aid certificate or safety officer	Yes (include total allowance in gross payment)	Yes
Non-deductible expenses	Part-day travel (no overnight absence from employee's ordinary place of residence) Meals (not award overtime meal allowance or overnight travel allowance) Motor vehicle for non-deductible travel – eg home to work, including cents per kilometre payments	Yes (include total allowance in gross payment)	Yes
Deductible expenses	Tools Compulsory uniform or dry cleaning Motor vehicle for work-related travel, including cents per kilometre payments in excess of ATO rate Overseas accommodation for deductible travel	Yes (show total allowance separately in the allowance box with an explanation)	No
On-call allowance (ordinary hours)	n/a	Yes (include total allowance in gross payment)	Yes
On-call allowance (outside ordinary hours)	n/a	Yes (include total allowance in gross payment)	No

*You need to withhold from allowances listed in Table 1a
**Ordinary time earnings (OTE)
***Super guarantee (SG)

STP Phase 1 pay event requirements

Table 1b lists the STP Phase 1 pay event requirements for types of allowances an employee might receive.

Table 1b - STP Phase 1 pay events for types of allowances an employee might receive
Allowance type****	Include in gross payment?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 field
Working conditions, qualifications or special duties	Yes	Yes	No	Gross PAYEVNTEMP47
Non-deductible expenses	Yes	Yes	No	Gross PAYEVNTEMP47
Deductible expenses	No	Yes	Yes	Other PAYEVNTEMP8
On-call allowance (ordinary hours)	Yes	Yes	No	Gross PAYEVNTEMP47
On-call allowance (outside ordinary hours)	Yes	Yes	No	Gross PAYEVNTEMP47

****Examples of the allowance types in Table 1b are the same as the examples in Table 1a

Allowances subject to a varied rate of withholding

Tables 2 to 6 list allowances that are subject to a varied rate of withholding.

Table 2a – Cents per kilometre car expense payments using the approved rate
Allowance type	Are you required to withhold?	Include on payment summary?
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled up to 5,000 business kilometres	No	Yes (show total allowance separately in the allowance box with an explanation).
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled in excess of 5,000 business kilometres	Yes (from payments for the excess over 5,000 kilometres)	Yes (show total allowance separately in the allowance box with an explanation)
Payments made at a rate above the approved rate for distances travelled up to 5,000 business kilometres	Yes (from the amount which relates to the excess over the approved rate)	Yes (show total allowance separately in the allowance box with an explanation)

The allowance types in Table 2a are not considered OTE and SG does not apply.

Table 2b - STP Phase 1 pay event for cents per kilometre car expense payments using the approved rate
Allowance type	Include in gross payment?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 Field
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled up to 5,000 business kilometres	No	Yes	Yes	Car
Payments made by applying the approved (or a lower) rate to the number of kilometres travelled in excess of 5,000 business kilometres	No	Yes	Yes	Car
Payments made at a rate above the approved rate for distances travelled up to 5,000 business kilometres	No	Yes	Yes	Car

See an example and more information about the cents per kilometre method.

Table 3a – Award transport payments
Allowance type	Are you required to withhold?	Include on payment summary?	Part of OTE? Does SG apply?
Award transport payments that are deductible transport expenses	No	Yes (show total allowance separately in the allowance box with an explanation)	No
Award transport payments that are non-deductible transport expenses	Yes (from total payment)	Yes (include total allowance in gross payment))	Yes

Table 3b - STP Phase 1 pay event for award transport payments
Allowance type	Include in gross payment?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 Field
Award transport payments that are deductible transport expenses	No	Yes	Yes	Transport
Award transport payments that are non-deductible transport expenses	Yes	Yes	No	Gross PAYEVNTEMP47

See examples and more information about award transport payments.

Table 4a – Laundry (not dry cleaning) allowance for deductible clothing
Allowance type	Are you required to withhold?	Include on payment summary?
Up to the threshold amount	No	Yes (show total allowance separately in the allowance box with an explanation)
Over the threshold amount	Yes (from the excess over the threshold amount)	Yes (show total allowance separately in the allowance box with an explanation)

The allowance types in Table 4a are not considered OTE and SG does not apply.

Table 4b - STP Phase 1 pay event for laundry (not dry cleaning) allowance for deductible clothing
Allowance type	Include in gross payment?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 Field
Up to the threshold amount	No	Yes	Yes	Laundry
Over the threshold amount	No	Yes	Yes	Laundry

Work out costs you can claim for clothing, laundry and dry cleaning expenses.

Table 5a – Award overtime meal allowances
Allowance type	Are you required to withhold?	Include on payment summary?
Up to reasonable allowances amount	No	No
Over reasonable allowances amount (allowance must be paid under an industrial instrument in connection with overtime worked)	Yes (from the excess over reasonable allowances amount)	Yes (show total allowance separately in the allowance box with an explanation)

The allowance types in Table 5a are not considered OTE and SG does not apply.

Table 5b - STP Phase 1 pay event for award overtime meal allowances
Allowance type	Include in gross payment?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 Field
Up to reasonable allowances amount	No	No	No	n/a
Over reasonable allowances amount (allowance must be paid under an industrial instrument in connection with overtime worked)	No	Yes	Yes	Meals

See examples and more information about overtime meal allowances.

Table 6a – Domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence
Allowance type	Are you required to withhold?	Include on payment summary?
Up to reasonable allowances amount	No	No
Over reasonable allowances amount	Yes (from the excess over reasonable allowances amount)	Yes (show total allowance separately in the allowance box with an explanation)
Overseas accommodation	Yes	Yes (show total allowance separately in the allowance box with an explanation)

The allowance types in Table 6a are not considered OTE and SG does not apply.

Table 6b - STP Phase 1 pay event for domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence
Allowance type	Include in GROSS PAYMENT?	Include in PAYGW for gross income type?	Include in allowance tuple?	STP Phase 1 Field
Up to reasonable allowances amount	No	No	No	n/a
Over reasonable allowances amount	No	Yes	Yes	Travel
Overseas accommodation	No	Yes	Yes	Travel

Work out if the exception applies and what is covered in travel allowances.

Labour-hire workers who receive living-away-from-home allowance (LAFHA) can't access Fringe Benefits Tax (FBT) concessions. LAFHA is considered ordinary income and withholding applies.

FBT rules exclude labour-hire arrangements from the concessions as the labour-hire firm is not the employer of the worker.

For more information and examples of allowances, see:

TD 2021/6 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2021-22 income year?
TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses?
TR 2020/1 Income tax: employees: deductions for work expenses
TR 98/5 Income tax: calculating and claiming a deduction for laundry expenses

Withholding for allowances

Overview

Types of allowances and how they're treated

STP Phase 1 pay event requirements

Allowances subject to a varied rate of withholding

Tools

Tax information for

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