Allowances are a set amount of financial funding provided by businesses without supporting invoices as part of their agreement with their employees. These allowances are used to pay for meals, laundry, uniforms, and tools.
Although allowances are taxable, payroll tax exemptions can be claimed for certain activities performed by contractors and employment agents, as stated by the Payroll Tax Act 2007. This ruling explains that while all allowances payable to employees are taxable for tax purposes, there are specific exempted provisions. Here are some exempt allowances that your business can be eligible for:
Overnight Accommodation Allowance
Allowance for accommodation expenses is used when employees have to stay away from home for business purposes. This means covering the costs of temporary accommodation for a continuous period of no more than 21 days or more than 21 days where employers continue to maintain a dwelling for the employees.
To calculate the exemption for a particular financial year, use the exempt accommodation allowance rates for allowances that include accommodation, meals, and incidental expenses. If you paid the hotel directly, use the exempt meals and incidental rates for allowances only for these corresponding expenses.
Motor Vehicle Allowance
All or part of allowances paid to employees when using their private vehicles for business purposes may be exempt from payroll tax. This depends on the number of kilometres reached in a certain period.
To compute your motor vehicle allowance exemption, calculate the exemption by checking the correct rate per kilometre for a particular financial year. Other approved ways to calculate the exempt kilometres are using the continuous recording method and averaging method.
If the allowance you provide to employees is at a flat rate, an exempt component can be deducted. To use the continuous recording method, find the sum of the distances travelled for the business journeys. This requires recording the purpose of the trip, odometer readings for the start and end of the business journey, and the total number of business kilometres travelled during a specific financial year.
If it’s a hassle to separate private and business use of vehicles, calculate the business use over a continuous period of 12 weeks. Doing this will allow you to determine the business kilometres as a percentage of the total kilometres.
During this 12-week period, take note of the purpose of the business journeys, odometer readings at the start and end of the trips, the distance of all business journeys travelled during this particular period, and the total distance travelled during the averaging period.
Living Away From Home Allowance
A living away from home allowance (LAFHA) is a fringe benefit. This means its value for payroll tax purposes is the value determined in accordance with the Fringe Benefit Tax Assessment Act. In other words, if the Act states that the allowance does not qualify as a living away from home allowance benefit, it will be considered as an overnight accommodation allowance.
Allowances are often necessary to provide compensation for employees in certain unusual conditions or allow them to meet particular requirements connected with the services they offer. If you need further guidance on the types of allowances subject to the payroll tax or seek help to calculate the exemptions, consider hiring a business accountant.
Whether you need calculation assistance or help to apply for a payroll tax exemption, our skilled accountants in Gold Coast at New Wave Accounting can address your needs. We also offer bookkeeping services and innovative accounting solutions. Contact us to see how we can help!