Process
In Phase 1 reporting, some allowances are reported separately, and some are reported as part of Gross. This has changed for STP Phase 2.
There are 3 steps you should follow to work out how to report allowances in STP Phase 2:
- Identify whether the amount is a reportable allowance
- Identify whether the allowance needs to be disaggregated
- Identify the purpose of the allowance.
Identify whether the amount is a reportable allowance
Generally, allowances are reportable through STP. There are some things which you may know as allowances which don't need to be reported through STP because:
- they are not allowances, or
- there are special rules about reporting them.
To work out whether you need to report allowances you've paid, consider these questions:
- Are you paying an amount to your employee?
- STP is reporting about payments that you make. If you are not paying an amount, there's nothing to report through STP.
- However, if you are providing a fringe benefit, you may need to consider your fringe benefits tax (FBT) obligations and you may need to include reportable fringe benefits in your STP reporting.
- Is the amount you're paying your employee, reimbursing an expense that can be verified by receipts?
- There's a difference between allowances and reimbursements. Reimbursements typically compensate an employee exactly for an expense they have incurred on your behalf and the recipient generally needs to verify that they did incur that expense.
- Reimbursements should not be reported through STP.
- Is the amount you're paying your employee a living away from home allowance fringe benefit?
- Living away from home allowance fringe benefits are not reportable as allowances through STP.
- Some industrial instruments may use the name 'living away from home allowance' to describe a payment that is actually a travel allowance, so it's important to understand which one you're paying.
- Is the amount you're paying your employee an overtime meal allowance or travel allowance which also exceeds the relevant ATO reasonable amount for the financial year?
- There are special rules for reporting overtime meal allowances or travel allowances. You don't need to report overtime meal allowance and travel allowance if it's up to and including the ATO reasonable amount. If the amount you pay exceeds the ATO reasonable amount, you must report the whole amount that you paid.
Example: identify whether the amount is reportable
Harry's business has a large piece of equipment which needs to be moved to a different location. This involves hiring a trailer and one of Harry's employees using their own car to tow that trailer.
The award which covers Harry's employees, provides for an allowance of 88 cents per kilometre to be paid when an employee is required to use their own car for work purposes.
On the day that the equipment is moved, Harry's employee drives their car 8 kilometres from the workplace to the trailer hire lot. They use their own money to pay the trailer hire fee and receive a receipt. They drive 8 kilometres back to the workplace. The equipment is loaded into the trailer and Harry's employee drives 10 kilometres to the equipment’s new location where it is unloaded. They drive 3 kilometres to the trailer hire lot to return the trailer and then drive another 8 kilometres back to the workplace.
Harry's employee provides him with their odometer readings showing that they travelled a total of 37 kilometres and the trailer hire receipt showing the cost of $126.37.
Harry pays his employee a total cents per kilometre allowance of $32.56 and the total trailer hire cost of $126.37.
The $32.56 cents per kilometre allowance is an allowance Harry needs to include in his STP reporting. It's not a reimbursement because it is an estimate of an expense, neither Harry or his employee measured whether or not the decline in value, registration, insurance, maintenance, repairs and fuel costs for each of those 37 kilometres was actually 88 cents and there are no receipts.
The $126.37 trailer hire fee is a reimbursement and Harry doesn't need to include it in his STP reporting. This is because it is precisely compensating a verified business expense.
End of exampleIdentify whether the allowance needs to be disaggregated
You must report allowances separately in STP, unless an exception applies. This ensures government agencies that receive your STP reporting can identify amounts which are treated differently for different purposes, such as PAYG withholding, super or income tested payments and benefits.
The 2 exceptions to disaggregating allowances are if:
- the allowance forms part of an amount you need to report as overtime
- As overtime is treated differently for super guarantee purposes, you should include the amount as overtime in your STP report.
- you're paying the employee amounts which are cash out of leave in service (paid leave type C) or unused leave on termination (paid leave type U)
- Cashing out of leave entitlements is treated differently in the tax, super and social security systems compared to allowances paid when work is performed or would have been performed.
- Use the applicable leave type to report allowances that form part of cashed out leave entitlements.
All-purpose allowances
Many awards include allowances that are added to an employee's hourly rate and are paid for all purposes, such as when calculating payments for leave or overtime.
In STP Phase 2, you must separately report all-purpose allowances against the relevant allowance type unless one of the exceptions above applies.
Some employers may have historically set up their payroll using a single rate that includes the employees’ hourly rate and all-purpose allowances. However, it is important that those allowances can be identified because they are treated differently in different situations and not being able to identify them may disadvantage your employee. For example, how the ATO treats allowances in a tax return is not the same as how Services Australia treats those allowances when assessing a benefit claim.
You should follow your DSP's instructions about setting up your payroll solution to continue to meet your Fair Work obligations and report all-purpose allowances correctly in STP.
Example: all-purpose allowances
Deanna employs James. James is employed under the Crocodile Award, and is entitled to be paid:
- a base rate of pay of $840.10 per week
- an industry allowance of $33.28 per week
- a tool allowance of $20.02 per week.
The award expresses that both the industry allowance and the tool allowance are to be paid 'for all purposes', including when calculating overtime.
It is an ordinary work week and James has been at work. On top of his ordinary hours, he worked 2 hours of overtime on one weekday, for which he is entitled to be paid at 150% of his all-purpose rate.
When Deanna reports the wages she paid James for his week of work through STP, she includes:
- gross: $840.10 – this is James' base pay for his ordinary work hours
- allowance type KN tasks: $33.28 – she has disaggregated the industry allowance relating to the time James was at work doing ordinary hours to the relevant allowance category
- allowance type TD tools: $20.02 – she has disaggregated the tool allowance relating to the time James was at work doing ordinary hours to the relevant allowance category
- overtime: $70.53 – she doesn't need to separate the components which are part of the calculated overtime payment.
Identify the purpose of the allowance
Understanding the purpose of an allowance is important because it influences how you withhold from it and how you calculate your employee’s super entitlements. It also influences how you report those allowances in STP, because STP allowance categories are based on:
- where there are PAYG withholding considerations (such as an ATO reasonable amount or limit)
- where there are special rules for an employee when completing their tax return (such as substantiation of deductions they claim corresponding to the allowance)
- whether super applies to the allowance (such as allowances relating to working conditions during the employee’s ordinary hours).
Sometimes, awards and industrial instruments may give some allowances names which don't clearly describe the purpose of an allowance. It's important to consider the substance of the allowance and not just what it's called.
When you are identifying how to report allowances in STP, you should consider these questions:
- Is the purpose of the allowance to compensate for an expense? If so, what is the expense and why will the employee incur it?
- Is the purpose of the allowance to compensate for the employee’s work conditions or for doing specific activities? If so, which ones?
Example: identifying the purpose of allowances
The Pond Standing Award provides for the payment of a wet work allowance.
The clause about wet work allowance in the award is surrounded by other clauses dealing with working conditions, such as confined spaces and heights.
Mason begins to think that the purpose of the wet work allowance is also related to working conditions.
Mason reads the clause about wet work allowance more closely. He finds out that 'A wet work allowance of $0.69 per hour must be paid to an employee working in any place where their clothing or boots become saturated by water, oil or another substance. This allowance is paid only for the part of the day or shift that the employee is required to work in wet clothing or boots'.
With all this information, Mason can see that the purpose of this allowance is to compensate employees for the difficult working condition of being in wet clothes.
End of example
Example: identifying the purpose of allowances
Thomas operates a business involved in the raising, slaughter and sale of livestock. The Enterprise Bargaining Agreement (EBA) which applies to his employees, provides for the payment of 'cow allowance' and he is trying to identify how to report this allowance in STP.
Thomas cannot only rely on the name of the cow allowance as that could refer to many things. He has employees that are required to:
- provide and maintain equipment to care for cows
- obtain specialised qualifications in the management of cows
- transport cows
- perform duties relating to slaughter of cows
- work in conditions soiled by cows or their slaughter
- wear a cow costume when performing advertising related duties.
Thomas refers to the EBA covering his employees. It tells him that:
- the kind of employees who are entitled to receive cow allowance are those with veterinary qualifications
- the allowance is payable in connection with a requirement to undertake continuing professional development (CPD) in bovine care required as a condition of their professional registration.
With all of this information, Thomas can see that the purpose of this allowance is to compensate his employees for the expense of training required to maintain their professional registration or qualifications.
End of exampleSTP reporting includes allowances paid for:
- transport (in a car, on public transport, or in a different kind of vehicle)
- obtaining or cleaning uniforms and clothing
- employees needing to buy a meal during work time
- employees travelling away from home
- employees needing to supply something to do their work
- getting or keeping a qualification, certificate or licence
- performing extra duties or working in difficult conditions
- employee incurring an expense that was not for business purposes
- other purposes not already covered
Transport (in a car, on public transport, or in a different kind of vehicle)
There are many different types of allowances which are paid for the purpose of compensating an employee for the costs of transport. These can include the cost of:
- driving a car, ute, van or motorcycle
- ride-share and ride-sourcing
- catching a train, plane, taxi, boat, bus or other vehicle.
These kinds of allowances don't relate to travel expenses, such as the costs of accommodation.
When working out how to report in STP about allowances you pay for the purpose of compensating an employee for the costs of transport, consider these questions:
- Is the transport for business purposesExternal Link?
- Yes – continue to the next question.
- No – go to expenses that are not incurred for business purposes.
- Is the amount of the allowance measured on a cents per kilometre basis?
- Yes – go to question 5.
- No – continue to the next question.
- Is the allowance traceable to an award that was in force on 29 October 1986?
- Yes – report as award transport payments (allowance type AD).
- No – continue to the next question.
- Don't know - continue to the next question.
- Is the mode of transport used public transport?
- Yes – report as other allowances (allowance type OD) with the allowance code T1
- No – report as other allowances (allowance type OD) with the allowance code V1
- Is the vehicle a car?
- Yes – report as cents per km (allowance type CD).
- No – report as other allowances (allowance type OD) with the allowance code V1
Obtaining or cleaning uniforms and clothing
There are many different types of allowances which are paid in relation to an employee’s clothing. When working out how to report in STP about these allowances, consider these questions:
- Is the allowance being paid to compensate for the cost of purchasing a uniform or work-related clothing?
- Yes – report as other allowances (allowance type OD) with the allowance code U1
- No – continue to the next question.
- Is the clothing being cleaned for work related purposes? For example, because the clothing is uniform required at work.
- Yes – continue to the next question.
- No – go to expenses that are not incurred for business purposes.
- What kind of clothing is being cleaned?
- Conventional clothing – report as other allowances (allowance type OD) with the allowance code G1
- Occupation-specific clothing – report as laundry (allowance type LD)
- Protective clothing – report as laundry (allowance type LD)
- A compulsory uniform – report as laundry (allowance type LD)
- A non-compulsory uniform which has been registered on the Register of Approved Occupational ClothingExternal Link – report as laundry (allowance type LD)
- A non-compulsory uniform which has not been registered on the Register of Approved Occupational ClothingExternal Link – report as other allowances (allowance type OD) with the allowance code G1.
Employees needing to buy a meal during work time
There are many different types of allowances which are paid for the purpose of compensating an employee for the cost of meals that they consume at work. When working out how to report in STP about these allowances, consider these questions:
- Is the meal break for which the meal was bought connected with overtime worked?
- Yes – continue to the next question.
- No – go to expenses that are not incurred for business purposes.
- Does the amount of the allowance exceed the ATO reasonable amount for overtime meal expenses?
- Yes – report as overtime meal allowance (allowance type MD).
- No – you don't need to report this allowance.
Employees travelling away from home
There are many different types of allowances paid to employees to compensate for the costs of travelling on work. These include allowances for accommodation, meals or incidental expenses. When working out how to report in STP for these allowances, consider these questions:
- Is the travel for business purposes or due to their personal circumstancesExternal Link?
- Business purposes – continue to the next question.
- Personal circumstances – go to expenses that are not incurred for business purposes.
- Was the employee required to sleep away from home?
- Yes – continue to the next question.
- No – go to expenses that are not incurred for business purposes.
- Is the employee travelling on work or living at a locationExternal Link?
- Travelling on work – continue to the next question.
- Living at a location – you do not need to report this as an allowance in STP. However you should consider whether you have reportable fringe benefits that you need to report.
- Is the allowance being paid to compensate the employee for the cost of accommodation overseas?
- Yes – report as other allowances (allowance type OD) with the allowance code G1
- No – continue to the next question.
- Does the amount of the allowance exceed the ATO reasonable amount for travel expenses?
- Yes – report as travel allowance (allowance type RD).
- No – you do not need to report this allowance.
Employees needing to supply something to do their work
There are many different types of allowance which are paid for the purpose of compensating an employee for the costs of supplying and maintaining tools and equipment required for their work. When working out how to report in STP about these allowances, consider these questions:
- Is the amount you are paying a reimbursement for the cost of the tools or equipment?
- Yes – you do not need to report this reimbursement through STP.
- No – continue to the next question.
- Are the tools or equipment used for business purposes?
- Yes – report as tool allowances (allowance type TD).
- No – go to expenses that are not incurred for business purposes.
Getting or keeping a qualification, certificate or licence
There are many different types of allowance which are paid for the purpose of compensating an employee for the costs of getting or keeping a qualification or licence.
These kinds of allowances don't relate to situations where the employee is being compensated for performing extra duties, just because those duties might require a certificate for the employee to be eligible to perform them, such as being the first aider on duty.
When working out how to report in STP about allowances you pay for the purpose of compensating an employee for the costs of getting or keeping a qualification or licence, consider these questions:
- Is the amount you are paying the employee a direct reimbursement of their costs in getting, renewing or keeping their qualification?
- Yes – you don't need to report this reimbursement through STP.
- No – continue to the next question.
- Is the allowance relating to the employee getting or renewing an ordinary car driver's licence?
- Yes – go to expenses that are not incurred for business purposes.
- No – continue to the next question.
- Is the qualification, certificate or licence obtained, maintained or renewed for business purposes?
- Yes – report as qualification and certification allowances (allowance type QN).
- No – go to expenses that are not incurred for business purposes.
Performing extra duties or working in difficult conditions
Awards and other industrial instruments provide for a wide range of allowances that are paid to compensate the employee for specific tasks or activities performed that involve additional responsibilities, inconvenience, or efforts above the base rate of pay. These allowances are known as services allowances because they are not paid to compensate an employee for expenses they may incur.
When working out how to report in STP about allowances you pay for the purpose of compensating an employee for specific tasks or activities, consider these questions:
- Is the amount you are paying relating to an expense the employee has incurred or will incur?
- Yes – identify the purpose of the allowance.
- No – continue to the next question.
- Does the allowance you are paying relate to working conditions or performing additional duties?
- Working conditions – report as task allowances (allowance type KN).
- Performing additional duties – continue to the next question.
- Are you paying the employee for the additional duties with an allowance, an increase to base salary (for example, an employee performing higher duties may either receive a higher duties allowance or be advanced to a higher pay point), or a different kind of payment?
- Allowance – report as task allowances (allowance type KN) .
- Higher base salary or different kind of payment – report as the appropriate payment type (such as Gross).
Employee incurring an expense that was not for business purposes
Generally, an employee is not entitled to claim a deduction in their tax return for expenses which were not work-related.
A common example is when an award or industrial instrument provides for the employee to be paid an allowance for the costs of transport between their home and their usual workplace. An employee usually won't be entitled to claim a deduction for those costs, as travel between home and work is not considered to be transport for business purposes, except in limited circumstances.
If the allowance you are paying relates to an expense that is not work-related, you should report it as other allowances (allowance type OD) with the allowance code 'ND'.
Other purposes not already covered
While there are 8 specific allowance categories to report in STP, industrial instruments provide such a wide variety of allowances that it is not possible to have categories for all of them.
If you're paying an allowance that isn't covered in the sections above, you should report it as other allowances (allowance type OD) and determine an appropriate description.
Allowance types in STP Phase 2
The allowance types you will separately report in STP Phase 2 are:
- cents per km (allowance type CD)
- award transport payments (allowance type AD)
- laundry (allowance type LD)
- overtime meal allowance (allowance type MD)
- travel allowances (allowance type RD)
- tool allowances (allowance type TD)
- qualification and certification allowances (allowance type QN)
- task allowances (allowance type KN)
- other allowances (allowance type OD)
Cents per km allowance (allowance type CD)
This applies to deductible expense allowances paid to employees using their own car at a set rate for each kilometre travelled for business purposes that represents the vehicle running costs including registration, fuel, servicing, insurance and depreciation.
The amounts you report using this allowance type are the same cents per kilometre allowances which have a varied rate for PAYG withholding based on the ATO rate and business kilometres limit. For reporting through STP, use this allowance type to report both:
- cents per kilometre allowances that exceed the ATO rate or business kilometre limit or both, and
- cents per kilometre allowances that don't exceed the ATO rate or business kilometre limit or both.
You may also pay other kinds of allowances to your employees relating to transport (in a car, on public transport, or in a different kind of vehicle), such as flat rate car allowances. Don't report those as cents per kilometre allowances in STP.
The following table outlines some examples of what should and shouldn't be included in Cents per km allowance.
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Include |
Don't include |
|---|---|
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Award transport payments (allowance type AD)
Award transport payments are deductible expense allowances for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel or cents per kilometre reported as other separately itemised allowances) for business purposes, as defined in section 900-220 of the Income Tax Assessment Act 1997.
The current award transport payment must be traceable to an award in force on 29 October 1986.
The amounts you report using this allowance type are the same award transport payments which have a varied rate for PAYG withholding based on whether the transport expenses are deductible. For reporting through STP, use this allowance type to report only award transport payments that are deductible transport expenses.
You may also pay other kinds of allowances to your employees relating to transport (in a car, on public transport, or in a different kind of vehicle), such as cents per kilometre allowances or payments for transport that are not traceable to an award in force on 29 October 1986. Do not report those as award transport payments in STP.
The following table outlines some examples of what should and shouldn't be included in Award transport payments.
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Include |
Don't include |
|---|---|
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For more information see Award transport payments.
Laundry allowance (allowance type LD)
This is a deductible expense allowance paid to employees for washing, drying and ironing uniforms required for business purposes.
You should only include laundry allowances for the cleaning of clothing that falls into one or more of the following categories:
- Compulsory uniform – unique and distinctive to identify the employer with a strictly enforced policy that makes it compulsory for the uniform to be worn at work.
- Non-compulsory uniform – only if the design of the uniform has been entered on the Register of approved occupational clothing.
- Occupation-specific clothing – that isn't everyday in nature and allows the public to easily recognise the occupation.
- Protective clothing and footwear – to protect against the risk of illness or injury posed by the activities undertaken to earn the income.
The amounts you report using this allowance type are the same laundry allowances which have a varied rate for PAYG withholding based on the ATO approved threshold.
For reporting through STP, use this allowance type to report both:
- laundry allowances that exceed the ATO approved threshold
- laundry allowances that don't exceed the ATO approved threshold.
You may also pay other kinds of allowances relating to uniforms or clothing, such as allowances which help an employee purchase new uniforms. Don't report those allowances as 'laundry allowances' in STP.
The following table outlines some examples of what should and shouldn't be included in Laundry allowance.
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Include |
Don't include |
|---|---|
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Overtime meal allowance (allowance type MD)
This applies to deductible expense allowances defined in an industrial instrument that are in excess of the ATO reasonable amount, paid to compensate the employee for meals consumed during meal breaks connected with overtime worked.
The amounts you report using this allowance type are the same overtime meal allowances which have a varied rate for PAYG withholding based on the ATO reasonable amount for the financial year. For reporting through STP, use this allowance type to report only overtime meal allowances that exceed the ATO reasonable amount.
You may pay other allowances because the employee needed to buy a meal during work time that are not overtime meals, such as allowances for meals paid to workers doing their ordinary hours on a night shift. Do not report those as overtime meal allowances in STP, report them as other allowances (allowance type OD) with the allowance code ND instead.
The following table outlines some examples of what should and shouldn't be included in Overtime meal allowance.
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Include |
Don't include |
|---|---|
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Travel allowances (allowance type RD)
This applies to deductible expense allowances that are paid for domestic or overseas meals and incidentals and domestic accommodation, undertaken for business purposes, which is intended to compensate employees who are required to sleep away from home.
It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses.
The amounts you report using this allowance type are the same travel allowances which have a varied rate for PAYG withholding based on the ATO reasonable amounts for the financial year. For reporting through STP, use this allowance type to report only travel allowances that exceed the ATO reasonable amount.
As travel allowances for overseas accommodation don't have a varied rate for PAYG withholding, don't report them using this allowance type. Report these as other allowances (allowance type OD) instead.
Don't use this allowance type to report a living away from home allowance fringe benefit, but be careful as some industrial instruments use the name 'living away from home allowance' to mean a travel allowance that you do need to report here.
The following table outlines some examples of what should and shouldn't be included in 'travel allowances'.
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Include |
Don't include |
|---|---|
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Tool allowance (allowance type TD)
This applies to deductible expense allowances to compensate an employee who is required to provide their own tools or equipment for business purposes. This allowance was formerly required to be reported under other allowances with a description of the allowance type.
The following table outlines some examples of what should and shouldn't be included in Tool allowance.
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Include |
Don't include |
|---|---|
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Qualification and certification allowances (allowance type QN)
This applies to deductible expense allowances that are paid for obtaining or maintaining a qualification, which is evidenced by a certificate, licence or similar, and is required to perform the work or services. For example, this includes allowances to cover registration fees, insurance, licence fees, which are expected to be expended to maintain a requirement of the job.
It doesn't include allowances paid for performing additional duties just because those duties require a qualification or certificate. It also does not include a direct reimbursement of the cost.
The following table outlines some examples of what should and shouldn't be included in Qualification and certification allowance.
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Include |
Don't include |
|---|---|
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Task allowances (allowance type KN)
This applies to a services allowance that is paid to compensate an employee for specific tasks or activities performed that involve additional responsibilities, inconvenience or circumstances above the base rate of pay.
These allowances were included in gross in STP Phase 1 reporting but are now required to be reported separately.
It doesn't include allowances paid for obtaining or maintaining a qualification even if the qualification is a pre-requisite for performing the task.
Awards and enterprise agreements contain many different types of task allowances.
The following table outlines some examples of what should and shouldn't be included in Task allowance.
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Include |
Don't include |
|---|---|
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Other allowances (allowance type OD)
These are other allowances that are not otherwise separately itemised. These can either be deductible or non-deductible expenses. If the allowance belongs in one of the more specific allowance types detailed above, you must report it in the specific allowance type and not as other allowances.
Anything you report as 'other allowances' needs to have a description for the category of expense. These categories will help us assist each of your employees to complete their individual tax returns.
The following table outlines the description codes descriptions you can use.
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Allowance code |
Description |
|---|---|
|
H1 (home office) |
Use this code for deductible expense allowances related to the employee maintaining a home office (such as allowances to assist with initial set up or running costs). Do not use this code to report allowances that relate to specific tools and equipment that are reported as tool allowance (allowance type TD). |
|
ND (non-deductible) |
Use this code for non-deductible expense allowances. Generally, these will be allowances related to an expense which is not work-related, not for business purposes, or is for private purposes. |
|
T1 (transport or fares) |
Use this code for deductible expense allowances related to the employee travelling on public transport, or in taxis and rideshare services. Do not use this code to report allowances that relate to transport that was not for business purposes, use ND instead. |
|
U1 (uniform) |
Use this code for deductible expense allowances related to uniforms, as long as they are not for non-deductible expenses (use ND instead). |
|
V1 (private vehicle) |
Use this code for deductible expense allowances related to the employee travelling in a private vehicle. This includes cents per kilometre allowances for vehicles that are not cars. Don't use this code to report allowances that relate to transport that was not for business purposes (use ND). |
|
G1 (general) |
Use this code for deductible expense allowances that don't belong in one of the other codes above. |
|
Specific description we tell you to use |
Sometimes we will tell you to use specific descriptions in relation to certain programs, such as the specific descriptions relating to the JobMaker Hiring Credit scheme (which has now ended). If we tell you to use a specific description, use it instead of the main allowance codes. |
Depending on the product you use, these will appear in your STP report as either:
- the code only (for example, G1)
- the code and name (for example, U1 uniform)
- the code and the pay code description you have used in your payroll (for example, H1 internet allowance).
The following table outlines some examples of what should and should not be included in Other allowances.
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Include |
Don't include |
|---|---|
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G1 (general)
H1 (home office)
ND (non-deductible)
T1 (transport or fares)
U1 (uniform)
V1 (private vehicle)
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