Edition 67 Allowances

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1 Edition 67 Allowances INTRODUCTION According to the Tax Office, the treatment of allowances is one of the most misunderstood areas of payroll. Whether it be misclassifying an amount as an allowance (when it s actually a reimbursement) or applying the incorrect Payment Summary treatment, PAYG withholding, superannuation or payroll tax treatment, mistakes in this area are easy to make. This BKB addresses all of these issues for the many of you who handle payroll, and also clarifies the treatment of living away from home allowances (LAFHAs) in light of recent legislative changes. REIMBURSMENT VERSUS ALLOWANCE From the outset it s important to define an allowance, and in particular distinguish it from a reimbursement as the payment summary, PAYG withholding, superannuation and payroll tax treatment can differ significantly. On the one hand, allowances: Are generally assessable income to the employee May be included on an employee s payment summary May attract superannuation, and The employee may be able to claim a deduction against the allowance for a work-related expense incurred. On the other hand, reimbursements: Are generally not taxable to the employee Will generally not be included on an employee s payment summary Will be fringe benefit taxable to the employer where they constitute an expense payment fringe benefit or a LAFHA May be liable for payroll tax where they constitute a fringe benefit Will not attract superannuation, and The employee will not be able to claim a tax deduction for the original expense incurred. According to Taxation Ruling TR 92/15, an allowance is a definite sum of money allotted or granted to meet expenses or requirements. An allowance usually consists of the payment of a definite or predetermined amount to cover an estimated expense, and is paid regardless of whether the recipient incurs the anticipated expense. An amount is not an allowance if it s just folded in to normal salary and wages. Rather an allowance must be a separately identifiable payment made to an employee for: Working conditions e.g. a danger allowance, on-call allowance Qualifications or special duties e.g. first aid officer allowance Expenses that cannot be claimed as a tax deduction by the employee e.g. travel between home and work, or Work related expenses that may be able to be claimed as a tax deduction by the employee e.g. travel between work sites or a uniform allowance for a compulsory uniform. On the other hand, a payment is a reimbursement when the employee is compensated exactly (i.e. precisely, not approximately), for an expense they have already incurred. In the case of a reimbursement, the employer considers the expense to be their own, with the employee effectively incurring the expenditure on behalf of the employer. With a reimbursement, the employee will almost always be required to produce evidence to the employer of the exact amount and nature of the expense (e.g. receipt), before the amount is reimbursed to them. TIP Be aware that reimbursements may constitute an expense payment fringe benefit. While FBT is outside the scope of this edition, if you as a bookkeeper determine that your client has provided a fringe benefit to an employee (or their associate) then depending on the scope of your engagement, it is important that you record this in the management accounts in a timely and accurate manner. For more information on accounting for FBT, see editions 1 and 45 of our Bookkeepers Knowledge Base series. Where an employee receives an expense payment fringe benefit, for income tax purposes it constitutes non-assessable, non-exempt income to the employee and therefore will not be recorded on the payment summary unless it forms part of the reportable fringe benefit amount. 1

2 EXAMPLE REIMBURSEMENT VERSUS ALLOWANCE (FROM TR 92/15) Danielle and Thomas are both employees of Faraway Investments Pty. Ltd. Apart from her usual salary, Danielle, an investment consultant, is paid $500 per month to cover expenses she is expected to incur while entertaining clients. Under an industrial award, Danielle also receives $50 per fortnight to cover medical insurance premiums for herself and her family. To be entitled to the $50 per fortnight, Danielle is required to produce a letter from the health fund certifying that she is a member. Apart from that, she is not required to vouch for any of the expenses she incurs in relation to either payment. Thomas, a bookkeeper, is entitled to payment from his employer for medical insurance premiums for himself and his family up to a limit of $300 per year. To claim the amount from his employer, he is required to produce his insurance premium statements verifying the amount he has spent The payments made to Danielle for entertaining clients and for medical insurance are allowances. Danielle is paid these amounts regardless of whether she spends the $500 on clients and regardless of whether she spends the whole $50 on medical insurance. On the other hand, the payments made to Thomas are reimbursements. Thomas is compensated exactly for his medical insurance expense and would not be entitled to payment if he is unable to produce evidence of the expense he has incurred. The upper limit of $300 per year does not alter the character of the payment. The payment by the employer is based on the precise accounting of actual expenditure. CENTS PER KILOMETER PAYMENTS For the many employees who claim their motor vehicle expenses from their employer using a cents per kilometre basis (e.g. using the rates provided by the Tax Office or stipulated in an Award), these payments are considered to be an allowance as they are not exact compensation for the expenses incurred by the employee. Having established what constitutes an allowance, we now consider its treatment from a Payment Summary, PAYG withholding, superannuation and payroll tax perspective. PAYG WITHHOLDING AND PAYMENT SUMMARY The PAYG rules require that certain types of allowances are subject to withholding whilst others are not. The following two tables are extracts from a Tax Office bulletin that considers whether PAYG withholding applies and whether the allowance should be shown on an employee s Payment Summary and, if so, at which label (i.e. Gross Payments label or the Allowances label). HOW MUCH? Where the below table indicates that withholding is required, the allowance amount should be added to the employee s normal earnings for the period (i.e. their salary). This total amount is the amount from which PAYG withholding for the pay period will be based (i.e. locate this total amount on the PAYG withholding tax tables, and withhold the corresponding amount). Table 1 - Allowances subject to PAYG withholding for the and future income years Allowance type Withhold PAYG? Show on Payment summary? Allowances paid for working conditions, qualifications or special duties For example: (include total allowance in gross payment) crib, danger, dirt, height, site, shift or travelling time trade, first aid certificate or safety officer. Allowances for non-deductible expenses For example: part-day travel (no overnight absence from (include total allowance in gross payment) 2

3 payee's ordinary place of residence) meals (not award overtime meal allowance or overnight travel allowance) motor vehicle for non-deductible travel for example, home to work, including cents per kilometre payments. Allowances for expected deductible expenses For example: tools compulsory uniform, dry cleaning motor vehicle for work related travel, including cents per kilometre payments in excess of Tax Office rate (1) overseas accommodation for deductible travel. the allowance box with an explanation) Table 2 - Other Allowances subject to PAYG withholding for the and future income years The Commissioner has approved PAYG withholding variations for the and future income years for allowances as shown in this table, provided: 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 The amount and nature of the allowance is shown the accounting records of the payer. Please refer to the footnotes for further information. Allowance type Withhold PAYG? Show on Payment summary? Cents per kilometre car expense payments using Tax Office rates (1) For payments made up to 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled. For payments made in excess of 5,000 business kilometres by applying the Tax Office rate to the number of kilometres travelled. Award transport payments (2) For deductible transport expenses For non-deductible transport expenses Laundry (not dry cleaning) allowance for deductible clothing (3) Up to the threshold amount Over the threshold amount (from the payment for the excess over 5,000 kms) (from total payment) (from excess over the threshold amount) in gross payment) 3

4 Award overtime meal allowances (4) Up to reasonable allowances amount Over reasonable allowances amount The allowance must be paid under an industrial instrument in connection with overtime worked Domestic or overseas travel allowance involving an overnight absence from payee's ordinary place of residence (4) up to reasonable allowances amount (from excess over reasonable allowances amount) 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 (from excess over reasonable allowances amount) Footnotes 1. The Tax Office rates vary depending on the engine capacity of the vehicle and are prescribed by regulation and updated in May each year. 2. An award transport payment is a transport payment paid under an industrial instrument (that is, an award, order, determination or industrial agreement) that was in force under Australian law on 29 October The income tax law specifies an amount of $150 as the threshold amount, but this can be increased from time to time by regulation. Dry cleaning allowances should have an amount withheld in accordance with Table The rates are set out in an annual Tax Determination issued in June each year. WARNING The fact that an employee receives an allowance, does not automatically entitle them to a tax deduction (and even more rarely to the full extent of that allowance). Rather, they must first incur work-related expenses relating to the purpose of the allowance. Irrespective of whether an employee is likely to incur such expenses you should withhold in accordance with the PAYG withholding rates. Where the earlier reproduced tables show that withholding is required, allowances are added to normal the earnings during the period (i.e. salary) and the amount to withhold is calculated on the total amount of salary and allowances for the pay period. This amount should not be altered on the basis that the employee is likely to incur or has incurred deductible expenses relating to the purpose of the allowance. If an employee wishes to vary the amount withheld from an allowance that they are paid (on the basis that they will incur deductible expenses relating to that allowance), then they must apply to the Tax Office by completing a PAYG withholding variation short application allowances or HELP/financial supplement. Only if they have applied to, and received approval from, the Tax Office can you alter the amount to be withheld from an allowance. te also that where six or more employees at the one workplace are seeking the same allowance withholding variation, the employer can apply to the Tax Office for a class variation on their behalf. If less than six employees are seeking a variation, then they must make individual applications themselves. SUPERANNUATION Whether an allowance attracts superannuation depends very much on the type of allowance. The general rule is that all allowances received by an employee, except for expense allowances that are expected to be fully expended and allowances that are fringe benefits (e.g. LAFHAs), will attract superannuation. However, where an allowance relates to work outside ordinary hours, it will not attract superannuation (for example, overtime meal allowances and on-call allowances paid to an employee in return for them making themselves available to be called into work outside ordinary hours) We now examine various types of allowances that you are likely to come across when handling payroll, and whether they attract superannuation. 4

5 Unconditional Extra Payment These allowances attract superannuation. These allowances are paid without any conditions attached to them i.e. they don t have to be fully expended by the recipient employee, and they won t necessarily be spent for the purpose for which they are provided, yet the employee still gets paid the allowance regardless. EXAMPLE David is a senior manager at a law firm. He is paid a flat $4 000 per year entertainment allowance to cover any expenses he may incur if and when he entertains potential or existing clients. The allowance will attract superannuation for the following reasons: The nature of David s work means that the allowance may not necessarily be fully expended as a lawyer, he may not incur $4 000 of entertainment expenses on clients The amount paid to David is an unconditional extra payment made to him regardless of whether he spends it David has complete discretion as to whether the allowance is spent, and what he spends the amount on. Expense Allowance Expected to be Fully Expended Where an allowance is paid with the expectation that, because of the nature of the employee s duties, it will be fully expended, it will not attract superannuation. This type of allowance is not provided as a reward for services but rather in recognition of the expenses that the employee will likely incur in providing their services. Examples may include a tool allowance for a tradesman, a uniform allowance for those required to purchase a compulsory work clothes, or a travel allowance for those who regularly undertake work-related travel for short periods. EXAMPLE Cameron is a mobile home loan lender with no fixed office. In addition to his normal salary, his employer pays him a motor vehicle allowance to cover the travel costs he incurs in meeting with borrowers. This allowance will not attract superannuation. Because of the nature of his duties (he is required to travel around to meet potential and existing customers), the allowance paid by Cameron s employer is paid in the expectation that it will be fully expended. The allowance is a pre-determined amount (not a reimbursement) calculated to cover Cameron s estimated motor vehicle expenses. It is not therefore paid as a reward for services but in recognition of the costs that are expected to be incurred by Cameron in providing his services. Conditions of Work Allowances paid for conditions of work or for qualifications or special duties, are additional remuneration paid to the employee for work undertaken or qualifications held. These amounts are an additional reward for services or qualifications and are not expected to be fully expended in the course of the employee performing their duties. These allowances therefore attract superannuation. Examples of such allowances may include a danger, crib or shift allowance, or an allowance paid to the designated first aid officer or fire warden in your workplace. Retention Allowance This allowance is sometimes paid to workers in recognition of the value to their employers. It is paid to an employee as an incentive to stay with their current employer, rather than retiring or accepting alternative employment elsewhere. As it is paid as a reward for an employee s continuing service to their employer, retention allowances attract superannuation. ORDINARY HOURS As stated, where the allowance according to the above rules is a reward for services (rather than an amount paid that is expected to be fully expended because of the nature of an employee s duties) it will generally attract superannuation. However, this is subject to an important exception. That is, no superannuation will be payable if the allowance (or normal salary such as overtime payments for that matter) relates solely to hours of work other than the employee s ordinary hours of work. For example, overtime meal allowances and on-call allowances paid to an employee for making themselves available to be called into work outside ordinary hours will not attract superannuation. The term 'ordinary hours of work' is defined in Superannuation Guarantee Ruling SGR 2009/2 as the hours specified as an employee s ordinary hours of work under their employment instrument (i.e. the relevant award, enterprise agreement, or individual flexibility agreement or a combination of these). The employment instrument need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction between ordinary hours and other hours. For example the non-ordinary hours may be paid at a higher rate. 5

6 Any hours worked in excess of, or outside of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work' (and therefore payments in respect of those hours will not attract superannuation). If the ordinary hours of work are not specified in an employment instrument, the 'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances. Where it is not possible to determine an employee's ordinary hours of work, then the actual hours worked should be taken to be the ordinary hours of work. EXAMPLE Brad is a hotel chef and is employed under an agreement requiring him to work a minimum number of hours per week; however additional time may be worked depending on demand. He often works additional hours, however as the hotel is open 24 hours per day, there is no consistent pattern. The agreement under which Brad works, does not specify the ordinary hours of work; and all hours are paid at the same rate. As his ordinary hours of work are not specified in an employment instrument, there is no clear and consistent pattern to the hours worked, and all hours are all paid at a flat rate, Brad s actual hours worked will be taken to be the ordinary hours. Therefore, all payments in respect of hours worked would attract superannuation. LIVING AWAY FROM HOME ALLOWANCE Living away from home allowances (LAFHAs) may be paid to an employee who is required to temporarily relocate (as opposed to just travelling see later table on page 7) and live away from their usual place of residence for work purposes. LAFHAs have always been taxed to the employer under the FBT system and will continue to be taxed in this way. In August 2012, the Government abandoned its plan to bring LAFHAs into the income tax system and make them assessable to the employee. For the many bookkeepers who handle payroll this may have required you to withhold tax from LAFHAs for the fist time. In a last minute change of heart, legislation was passed in September 2012 which will keep LAFHAs in the FBT system after all. However from 1 October 2012 to reduce the FBT payable on a LAFHA, the following conditions must all be met: 1. Employees must maintain a home in Australia that they are living away from because of work. (This home must be available at all times for their current use and enjoyment i.e. they must not be renting it out while they are away) 2. The LAFHA must be not have been paid for more than 12 months in respect of a particular location 3. Employees must provide their employer with a declaration about living away from home (which provides their two addresses and a statement that they will return to their home address once they are not required to be living away for work purposes). As stated, where these three conditions are not satisfied, the employer will not be able to reduce the taxable value (i.e. the FBT payable) on the allowance. Additionally, in order for the employer to reduce the FBT on the allowance, employees must substantiate all of their accommodation expenses, and must also substantiate all of their food/drink expenses above the Commissioner s reasonable amounts. Although the FBT liability will generally be handled by a business s accountant, to reduce the FBT payable, you can assist by: Ensuring employees provide the (point 3) declaration to the employer before the FBT return is lodged, and Reminding employees to substantiate all their accommodation and food/drink costs. Payment Summary You should not include LAFHAs on employee payment summaries as they are considered exempt income for the employee. LAFHAs should only be included on the payment summary if they form part of the employee s reportable fringe benefits amount. PAYG Withholding As stated, the plans announced in the May 2012 Federal Budget to bring the LAFHA into the income tax system and potentially require PAYG withholding were abandoned. LAFHAs will continue to be paid as a tax-free allowance to the employee (no PAYG withholding will be required). Superannuation Superannuation is not payable on LAFHA amounts as they are a fringe benefit. 6

7 OVERNIGHT TRAVEL ALLOWANCE Travel allowances are often provided to employees who have to travel (and sleep away) from their usual place of work for short periods (generally up to 21 days). Travel allowances attract special payroll treatment. Where an employee is paid a travel allowance up to the reasonable amount set out by the Commissioner each year: PAYG withholding is only required for the excess over the reasonable amount The amount only has to be shown on the payment summary if it is in excess of the reasonable amount (in which case the whole amount of the allowance must be shown) Superannuation will be payable only if the employee is not expected to fully expend the allowance. This contrasts sharply with the payroll treatment of LAFHAs (outlined earlier). Therefore, when handling payroll, it is important that you can distinguish between these two allowances (they are often confused with each other as both involve an employee being required to travel and sleep away from home in order to perform their work). On the one hand, LAFHAs are paid where an employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out their job at the new but temporary workplace. The employee has a clear intention/expectation of returning home on the cessation of work at the temporary location (in this sense, the employee is absent for a limited/finite period of time). On the other hand, a travel allowance is paid for specific trips because the employee is travelling in the course of performing their employment duties but has not temporarily relocated as a LAFHA recipient would. The existing work location continues to be the employee s regular place of work. In travelling away from home, the employee simply takes travel items (such as toiletries and a few changes of clothes) as opposed to residential belongings such as furniture, as may be the case for a LAFHA recipient. Employees receiving a travel allowance will also typically use temporary styles of accommodation such as hotels. TRAVEL ALLOWANCES VERSUS LAFHA POINTS OF DIFFERENCE TRAVEL ALLOWANCE LAFHA The existing work location continues to be the employee s regular place of work The employee simply takes travel items with them (e.g. toiletries, change of clothes) The employee (and their family) continues to reside near the existing work location The employee uses temporary styles of accommodation such as a hotel The employee is away on a specific trip for less than 21 days The employee has established a second or alternative work location The employee effectively takes up temporary residence away from what is considered their usual place of residence, and may take residential belongings such as furniture The employee has temporarily relocated, and their family may also join them or visit them The employee uses longer-term accommodation while away from home e.g. lease of residential premises The employee is staying away to work at an alternative work location for a significant period, generally more than one month COMMON MISTAKES Following is a list of common mistakes made when processing allowances, followed by the correct course of action: X When completing the Payment Summary, recording amounts reported at the Allowances label also at the Gross Payments label Do not record amounts at the Gross Payments label if they have already been recorded at the Allowances label X When completing the Payment Summary, including LAFHAs at the Allowances label LAFHAs are exempt income for the employee. LAFHAs should only be included on the Payment Summary if they form part of the reportable fringe benefits amount. (and, in that case, only at that label) 7

8 X t keeping abreast of changes The requirement to pay an allowance as well as the amount to be paid is often specified in a Modern Award (many of which are updated annually). Failing to keep abreast of changes in Modern Awards can result in incorrect allowance payments. Modern Awards, incorporating the latest updates, can be accessed at the Fair Work Australia website. Furthermore, it s important to keep abreast of any changes to the cents per kilometre rate for motor vehicle allowances, and annual changes to the reasonable travel allowance amounts prescribed by the Tax Office, as changes to these rates can impact the payroll tax treatment (see later) X Paying superannuation on all motor vehicle allowances Just because motor vehicle allowances are generally taxable, does not mean that they will always attract superannuation. As outlined earlier, where the nature of the employee s duties makes it likely that the allowance will be fully expended on motor vehicle travel in the course of their work, then the allowance will generally not attract superannuation. PAYROLL TAX Thanks to the harmonisation initiative undertaken by State and Territory Governments, the payroll tax law as it applies to allowances, is uniform across Australia (note however that the payroll tax rates themselves do differ from jurisdiction to jurisdiction). Harmonisation in this area is good news as it eliminates the difficulty of grappling with different payroll tax allowance rules should you have workers on the payroll who perform their services in different jurisdictions. Generally, all allowances paid or payable to an employee are taxable for payroll purposes even where they are paid to compensate an employee for a work-related expense which may be expended by the employee (e.g. uniform allowances). The only exceptions to this general rule that allowances are subject to payroll tax, is the exempt amount of a motor vehicle allowance and the exempt amount of an overnight accommodation allowance. We now detail how to calculate the exempt amounts. Motor Vehicle Allowance Motor vehicle allowances are generally paid to compensate employees who use their own vehicle for work-related purposes. Motor vehicle allowances are typically calculated and paid at either a cent per kilometre rate, or a flat rate (e.g. $400 per month, regardless of the distance travelled). Where a cents per kilometre rate is paid, and appropriate records have been kept, working out the exempt amount is a two-step process. Firstly take the top Tax Office cents per kilometre rate in the financial year preceding the financial year in which the allowance is paid. (e.g. for an allowance paid in the 2012/2013 year, the applicable rate would be 75 cents per kilometre; being the top Tax Office rate prescribed for 2011/2012 which is the previous financial year). The next step is to multiply this rate by the number of business kilometres travelled (the result of this calculation is the exempt payroll tax component ). If the allowance is less than the exempt component, then none of the allowance attracts payroll tax. On the other hand, if the allowance exceeds the exempt component, then only the amount above the exempt component will attract payroll tax. EXAMPLE Barry is a real estate agent who, due to the nature of his duties, is required to undertake extensive workrelated travel during the year. To compensate him for this expense, his employer pays him a cents per kilometre motor vehicle allowance of 80 cents. During the 2012/2013 year, Barry travelled kilometres for work (and therefore received a total allowance of $2 560, being 80 cents x kilometres). The exempt component of Barry s motor vehicle allowance is $160, calculated as follows: E = K x R Where: E K R is the exempt component is the number of business kilometres travelled during the year is the top cents per kilometre rate prescribed by the Tax Office in the previous financial year K (3 200) x R (75 cents) = E ($2 400) Therefore, $160 of the allowance will be subject to payroll tax (being the amount of the $2 560 allowance that is in excess of the exempt component of $2 400). 8

9 Where instead the allowance is paid at a flat rate (e.g. $400 per month regardless of the distance travelled), the employer must keep records to verify the number of business kilometres travelled during the year. Records can be kept either in the form of: Actual kilometres travelled (in which case you will need to retain records of the odometer readings for the start and end of each journey), or The 12 week averaging method (where, over a 12 week period, you record the odometer readings for each business journey, the purpose of each journey, and the total distance the car travels). Where such records are maintained, the exempt component of the allowance is also worked out as per the earlier formula (E = K x R). If you fail to keep proper records under one of these two methods, the whole flat rate allowance will be subject to payroll tax. EXAMPLE Following on from the earlier example, assume instead that Barry s employer paid him a flat monthly motor vehicle allowance of $150 ($1 800 for the year). Provided appropriate records were kept of the business kilometres, the exempt component of the flat rate allowance is $2 400 calculated as follows: E = K x R K (3 200) x R (75 cents) = $2 400 As the amount of the allowance paid ($1 800) is less than the exempt component ($2 400) the whole amount of Barry s flat rate motor vehicle allowance will be exempt from payroll tax. Where instead the allowance is paid is a combination of both a fixed/flat amount and a cent per kilometre rate, the total amount that exceeds the combined total of the two exempt components will be taxable. The exempt component is the exempt fringe benefit component plus the Tax Office cents per kilometre rate. Again, failure to keep records means that the whole allowance will be taxable. EXAMPLE (as per Revenue Ruling PTA 005.1) Total business kilometres travelled during the 2011/2012 year: Allowance paid for the year: Flat amount $ Rate per 30 cents $ $ Less exempt fringe benefit: $ Sub total: $ Less exempt component $ (using the 2010/2011 rate of 75 cents x the km travelled) Taxable portion of motor vehicle allowance $ 500 Overnight Accommodation Allowance The second category of exempt allowances is an overnight accommodation allowance. These allowances are paid to cover temporary overnight accommodation costs where an employee, because of work, is required to travel away from home for short periods. Temporary accommodation in this context means: (a) Accommodation for a continuous period of not more than 21 days, or (b) Accommodation for a continuous period of more than 21 days where the employee continues to maintain a domestic dwelling (i.e. their normal residence that they have temporarily travelled away from) for the purpose of accommodating the employee or their family. te the employee must sleep away from home for any exemption to apply. Overnight accommodation allowances should not be confused with an expense payment fringe benefit (or a reimbursement). Overnight accommodation allowances are pre-determined per night amounts, whereas an expense payment accommodation amount is effectively a reimbursement for the exact cost of being away from home. Overnight accommodation allowances also should not be confused with LAFHAs (to differentiate, see the earlier table on page 7). Having determined that the amount is an overnight accommodation allowance, it will attract payroll tax only to the extent that it exceeds the exempt rate. This exempt rate is outlined by the Tax Office each 9

10 year in a Tax Determination. In this Determination, to determine the exempt rate, you use the lowest capital city for the lowest salary band for the financial year. If you look at the Determination, for 2012/2013, the lowest salary band is $ or below, and the lowest capital city allowance is for Hobart. For accommodation, the amount prescribed in the Determination is $132 per night. Aside from accommodation, this Determination also includes reasonable amounts for meals and other incidental expenses (such as toiletries etc.). These components are also exempt from payroll tax where they do not exceed the limits set out in the Determination. For 2012/2013, the exempt rates for food/drink and for incidentals are also the amounts for the lowest salary band (that being $ or below, and for the lowest capital city (Hobart). The amounts prescribed in the Determination are $98.40 per night for food/drink, and $17.85 per night for incidentals. When these two amounts are added to accommodation ($132) the total per night exempt amount of an overnight accommodation allowance for Hobart for 2012/2013 is $ Only amounts per night above this will be liable for payroll tax. Living Away From Home Allowance In terms of exemptions from Payroll tax, the other allowance worth noting is the LAFHA. Payroll tax is payable only on the taxable value of a LAFHA. The taxable value will generally be the amount of the allowance paid, however this may be reduced where the earlier three conditions on page 6 are met, and the employee substantiates their allowance expenses (see earlier for this requirement). Thus, where these conditions are met, the taxable value will be reduced and therefore the extent to which the allowance is subject to payroll tax will also be reduced. In determining the taxable value of a LAFHA and any reductions that may apply, we recommend you consult with the business s accountant. Disclaimer the information contained in this edition was first written in December Information contained herein is general in nature and is intended to provide guidance to bookkeepers in providing bookkeeping services for their clients. It is not intended to be taken as a substitute for you or your clients seeking professional advice in relation to their own specific circumstances. Copyright Except for use with other staff members or contractors of your bookkeeping firm, no part of this publication may be reproduced without the express permission of Australian Bookkeepers Network Pty. Ltd. 10

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