How do I know whether tax is payable on an allowance?
The answer to this question, of course, is that you should ask your accountant or phone the Tax Office. However, tucked away at www.ato.gov.au is a delightful document called PAYG bulletin no. 1 — Taxing of allowances. Please refer to this document to ensure you have the most up-to-date information. However, at the time of writing, the list below summarises the tax treatment of most common employee allowances.
Deduct PAYG for the following kinds of allowances . . .
- Allowances paid for working conditions, such as first aid allowance, shift allowance or danger allowance.
- Allowances paid for things that aren’t tax-deductible, such as non-deductible travel between work and home, or meal allowances that are over and above the award.
- Allowances paid for things that are expected to be tax-deductible, such as tool, uniform or dry-cleaning allowances.
- Allowances paid for cents-per-kilometre vehicle use (at rates prescribed by the Tax Office), in excess of 5,000 km per year.
But don’t deduct PAYG for these kinds of allowances . . .
- Allowances paid for cents-per-kilometre vehicle use (at rates prescribed by the Tax Office), up to 5,000 km per year.
- Allowances paid for laundry (not dry-cleaning), up to the allowable threshold amount.
- Allowances paid for overtime meal allowances, up to the reasonable allowances amount as specified in ATO annual rulings.
Marking allowances in MYOB Payroll
If an allowance isn't taxable, then you need to open up this allowance from your Payroll Categories list, click the Exempt button, and then select PAYG Withholding Tax. Once you've done this, experiment by creating a pay that includes this allowance. Change the amount of allowance and double-check that the PAYG tax on this employee's pay doesn't change when you so.
The contents from this page are taken from the MYOB Payroll eBook series, by Veechi Curtis, available online for only $9.95 each.
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