When it comes to allowances, they are treated as separate identified payments made to employees to cover various expenses while they’re working. It can include a variety of things from travel expenses, meal allowances, and the like. Regardless, different allowances need to be understood, all because they have special treatment in the eyes of the Australian Taxation Office
That said, today, let’s delve deeper into travel allowance and living away from home allowance, outlining what each is and their differences from each other:
What Is Travel Allowance?
Travel allowance is money paid to an employee to cover costs they incur while they’re travelling while they’re at work. It can include airfares, rental cars, accommodation, costs for meals and incidentals. The tax treatment of this allowance depends on the length of the trip.
If it’s local travel, that is, the employee’s travel is entirely within the employee’s home base of work or within a fifty-kilometre radius of their home base of work, then the living away from home allowance does not apply.
If the travel doesn’t fall under this criteria, then the living away from home allowance applies.
What Is Living Away from Home Allowance?
Living away from home allowance is an allowance paid to an employee to cover the extra costs they incur while they’re travelling on a work-related business. The rule of thumb is that the employee must be away from their home base of work for a period longer than a normal day’s work. It includes any overnight travel, accommodation, and meals.
The treatment and taxation of this allowance depend on the length of the travel. If the employee is away from their home base for less than a week, then it attracts a flat deduction. If the employee is away for longer than a week, it is a taxable allowance.
If the employee is away on a short-term trip and they are required to sleep away from home, then they can claim a deduction for the expenses associated with that travel as well.
What's the Difference between the Two?
When it comes to tax deductions and treatment, the rule of thumb is that travel allowance is tax-deductible when the employee is away for less than a week, whereas living away from home is taxable when the employee is away for longer than a week.
How Do I Claim for Each?
If you’re an employer and you want to claim a deduction for travel allowance or living away from home allowance, you need to ensure you have the relevant evidence to back the claim up. If you’re an employee who is getting a travel allowance or living away from home allowance, then when you send your tax return to the ATO, you need to ensure that you state how many days you were away from home and for how long along with the rates that were paid to you.
When you’re working and travelling, it’s important that you’re able to get the right deductions and treatment for your travel allowance. This will help you get more money back when you send in your tax return. By keeping a record of your travels and how much you are paid for each, you’ll be better prepared to claim your entitlements when the time comes!New Wave Accounting offers end-to-end accounting and bookkeeping services to help businesses grow. If you are looking for an accountant on Gold Coast to help you out, work with us today!