Taxation of allowances in your Payroll Software

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For the up-to-date details on taxation of allowances, contact the ATO and obtain the most up-to-date Taxation of Allowances publications. You can obtain this online from the ATO Legal Database at the following website: http://law.ato.gov.au/atolaw/index.htm

Allowances subject to PAYG withholding for the 2000/01 and future income years

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ALLOWANCE TYPE	WITHHOLD PAYG?	SHOW ON PAYMENT SUMMARY?
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Allowances paid for working conditions, qualifications, special duties Examples include crib, danger, dirt, height, site, shift, or travelling time allowances, or qualifications or duties such as trade, first aid certificate, or safety officer qualifications.	Yes	Yes – include total allowance in gross payment
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Allowances for non deductible expenses Examples include: $image\bullet.gif$ part day travel (without overnight absence from payee’s ordinary place of residence); $image\bullet.gif$ meals (not including award overtime meal allowance or overnight travel allowance); $image\bullet.gif$ motor vehicle for non deductible travel, for example. home to work, including cents per kilometre payments	Yes	Yes – include total allowance in gross payment
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Allowances for expected deductible expenses Examples include $image\bullet.gif$ tools; compulsory uniform; dry cleaning; $image\bullet.gif$ motor vehicle for work related travel, including cents per kilometre payments in excess of the ATO rate (see note 1 ); $image\bullet.gif$ overseas accommodation for deductible travel	Yes	Yes – show total allowance separately in the allowance box with an explanation
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The Commissioner has approved PAYG withholding variations for the 2000/01 and future income years for allowances as shown in this table, provided:

$image\bullet.gif$ the payee 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

$image\bullet.gif$ the amount and nature of the allowance is shown separately in the accounting records of the payer.

Please refer to the notes below for further information about certain allowances.

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ALLOWANCE TYPE	WITHHOLD PAYG?	SHOW ON PAYMENT SUMMARY?
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Cents per kilometre car expense payments using ATO rates ( see note 1) $image\bullet.gif$ For payments made up to 5000 business kilometres by applying the ATO rate to the number of kilometres travelled.	No	Yes – show total allowance separately in allowance box
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$image\bullet.gif$ For payments made in excess of 5000 business kilometres by applying the ATO rate to the number of kilometres travelled.	Yes – from the payment for the excess over 5000 kms)	Yes – show total allowance separately in allowance box
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Award transport payments (see note 2) $image\bullet.gif$ For deductible transport expenses	No	Yes – show total allowance separately in allowance box
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$image\bullet.gif$ For non-deductible transport expenses	Yes – from total payment	Yes – show total allowance in gross payment
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Laundry (not dry cleaning) allowance for deductible clothing (see note 3) $image\bullet.gif$ Up to the threshold amount	No	Yes – show total allowance separately in allowance box
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$image\bullet.gif$ Over the threshold amount	Yes – from excess over the threshold amount	Yes – show total allowance separately in allowance box
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Award overtime meal allowances (see note 4) $image\bullet.gif$ Up to reasonable allowances amount	No	No
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$image\bullet.gif$ Over reasonable allowances amount. The allowance must be paid under an industrial instrument in connection with overtime worked	Yes – from excess over reasonable allowances amount	Yes – show total allowance separately in allowance box
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Domestic or overseas travel allowance involving an overnight absence from payee’s ordinary place of residence ( See note 4) $image\bullet.gif$ up to reasonable allowances amount	No	No
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$image\bullet.gif$ over reasonable allowances amount. An allowance for overseas accommodation must be subject to PAYG and be shown in the allowance box on the Payment Summary	Yes – from excess over reasonable allowances amount.	Yes – show total allowance separately in allowance box.
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Notes

1 The ATO rate varies depending on the engine capacity of the vehicle and is prescribed by regulation. If you are unsure what these rates are, check with the ATO on 13 28 61.

2 An award transport payment is a transport payment paid under an industrial instrument (for example, an award, order, determination or industrial agreement) that was in force under Australian law on 29 October 1986.

3 The income tax law specifies an amount of $150 as the threshold amount, but this can be increased from time to time by regulation. Contact the ATO to confirm the current threshold amount for laundry expenses. Dry cleaning allowances should have an amount withheld in accordance the first table in this topic..

4 The ATO publishes an annual Ruling that sets out the reasonable allowances amounts for award overtime meal allowance expenses and travel allowance expenses. Refer to this Ruling for the current year reasonable allowances amount. You can get a copy of the Ruling by telephoning the Tax Office’s general enquiry line on 13 28 61 or from the Internet at www.ato.gov.au

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