Please note that the text of this document has been=20 replicated from http://www.ato.gov.au/externalsite.asp?url=3Dhttp://www.taxr= eform.ato.gov.au=20 for your convenience.
A PDF=20 version of this document is available

Pay As You Go Bulletin

PAYG Bulletin

Number 4

Taxing of allowances = and=20 reimbursements paid to workers under a labour hire = arrangement=20 for the 2000/01 and future income years

Valid from 1 July 2000=20

Australian
Taxation
Office=20

Small Business=20

About this bulletin

The Pay As You Go (PAYG) withholding system requires = payers to=20 withhold an amount from payments made to workers under a = labour hire=20 arrangement. This occurs where:

the payer makes a payment to an individual in the = course or=20 furtherance of the payer's enterprise;=20
the payer's enterprise is a business of arranging for = persons=20 to perform work or services directly for clients of the = payer, or=20 the payer's enterprise includes a business of that kind = that is=20 not merely incidental to the main activities of the = enterprise;=20 and=20
the payment is made under an arrangement the = performance of=20 which, in whole or part, involves the performance of work = or=20 services by the individual directly for a client of the = entity, or=20 directly for a client of another entity.

The information in this bulletin outlines the correct tax = treatment of allowances and reimbursements paid to workers = under a=20 labour hire arrangement.

This bulletin only applies to payers who make payments to = individual workers under a labour hire arrangement, who are = not=20 employees of the payer (the labour hire firm). For more = information=20 on who is considered to be a worker under a labour hire = arrangement,=20 please refer to PAYG=20 Bulletin Number 3 PAYG Withholding and Labour Hire = Firms.

This bulletin does not apply to payments to payees who = are=20 employees, company directors or office holders. For = information on=20 the correct tax treatment of allowances paid to employees, = company=20 directors or office holders refer to PAYG=20 Bulletin Number 1.

Failure to withhold amounts from payments can cause = concern to=20 payees as well as to payers. From a payee's point of view, = if an=20 amount is not withheld from certain payments paid during the = year=20 the payee may receive a tax bill at the end of the year. = From the=20 payer's point of view, a failure to withhold an amount or to = disclose payments made on a Payment Summary may = result in=20 penalties being imposed on the payer.

What are allowances?

Allowances are separately identified payments made to a = payee:=20

for working conditions, for example, danger, height, = dirt;=20
for qualifications or special duties, for example, = first aid=20 certificate, safety officer;=20
for expenses that cannot be claimed as a tax deduction = by the=20 payee, for example, normal travel between home and work; = or=20
for expenses that may be able to be claimed as a tax = deduction=20 by the payee, for example travel between work sites. =

What is the correct tax = treatment for=20 allowances?

Table=20 1 of this bulletin lists the various types of allowances = that a=20 payee might receive and states how these allowances must be = treated=20 by the payer.

Table=20 2 of this bulletin lists those allowances for which the=20 Commissioner of Taxation has approved a variation of the = amount=20 required to be withheld and their reporting on the = Payment=20 Summary.

What are reimbursements?

A payment will be a reimbursement where the worker is = being=20 compensated exactly for an actual expense already = incurred.

If a payment is received for an estimated expense, = the=20 amount received by the payee is not a reimbursement.

What is the correct tax = treatment for=20 reimbursements?

The Commissioner has approved PAYG withholding variations = to nil=20 for the 2000/01 and future income years for payments of=20 reimbursements made to individual workers under a labour = hire=20 arrangement, provided:

the expense that the payee incurs is related directly = to the=20 payee's work or services performed under the labour hire=20 arrangement=20
the expenses that the payee incurred may be able to be = claimed=20 as a tax deduction at least equal to the amount of the=20 reimbursement,=20
the payee is advised that they will need to keep the = necessary=20 written evidence to substantiate the deduction claimed for = the=20 expenses, and=20
the amount and nature of the reimbursement is shown = separately=20 in the accounting records of the payer

The payer will not have to withhold PAYG amounts from = these=20 reimbursements.

The reimbursement received must be included in the gross = payment=20 shown on the Payment Summary.

Do you need more = information?

If you have any questions or need more information about = PAYG and=20 how to tax allowances and reimbursements paid to payees, you = can=20 contact the Tax Office:

by phone - on our national enquiry = number=20 13 24 78. You can ring this = number from=20 anywhere in Australia for the cost of a local call; or=20
A Fax From Tax. Information = is=20 available 24 hours a day 7 days a week by phoning=20 13 28 60 and following the = prompts; or=20
at our Internet site, = ATOassist=20 http://www.ato.gov.au/. =

Table = 1

Allowances subject to PAYG withholding for the = 2000/01=20 and future income years

ALLOWANCE = TYPE

WITHHOLD = PAYG?

SHOW ON PAYMENT=20 SUMMARY?

Allowances paid for working conditions,=20 qualifications, special duties

For example:

crib, danger, dirt, height, site, shift, = travelling=20 time;=20
trade, first aid certificate, safety officer.=20

Yes

Yes
(include total allowance in gross=20 payment)

Allowances for non deductible expenses=20

For example:

part day travel (no overnight absence from = payee's=20 ordinary place of residence);=20
meal payments=20
motor vehicle payments for non deductible travel = e.g.=20 home to work including cents per kilometre payments=20

Yes

Yes
(include total allowance in gross = payment

Allowances for expected deductible=20 expenses

For example:

tools;=20
compulsory uniform; dry cleaning;=20
motor vehicle for deductible travel, including = cents per=20 kilometre payments in excess of Tax Office rate⁼(1);

Yes

Yes
(show total allowance in gross=20 payment)

Table = 2

The Commissioner has approved PAYG withholding = variations=20 for the 2000/01 and future income years for allowances as = shown in=20 this table, provided:

the payee is expected to incur expenses that = may be=20 able to be claimed as a tax deduction at least equal to = the amount=20 of the allowance, and=20
the payee is advised that they will need to = keep the=20 necessary written evidence to substantiate the = deduction(s)=20 claimed for car expenses and travel expenses, and =
the amount and nature of the allowance is = shown=20 separately in the accounting records of the payer =

Please refer to the footnotes for further information = about=20 certain allowances.

ALLOWANCE TYPE

WITHHOLD PAYG?

SHOW ON PAYMENT SUMMARY?

Cents per kilometre car expense payments = using Tax=20 Office rates (1)

For payments made up to 5000 business kilometres = by=20 applying the Tax Office rate to the number of = kilometres=20 travelled.=20
For payments made in excess of 5000 business = kilometres=20 by applying the Tax Office rate to the number of = kilometres=20 travelled.

No

Yes (from the payment for the excess over 5000 = kms)

Yes

Yes

Domestic or overseas travel expenses = involving an=20 overnight absence from payee's ordinary place of=20 residence

No

Yes (show total amount in gross=20 payment)

(1) The Tax Office rate varies depending on the engine = capacity=20 of the vehicle and is prescribed by regulation, if you are = unsure=20 what these rates are, check with the Tax Office on=20 13 28 61.

For other important information, go to:=20