Exempt allowances for payroll tax
Most allowances you pay your employees are taxable wages for payroll tax.
You may be able to claim a payroll tax exemption up to a certain amount on motor vehicle allowances or accommodation allowances you provide to your employees.
Should you reimburse your employee for these expenses instead of giving them an allowance, the amount may be taxable if they are subject to fringe benefits tax.
Motor vehicle allowance
If you pay your employee an allowance for using their private vehicle for your business's purposes, all or part of this allowance may be exempt.
The exempt amount depends on the number of kilometres the employee travels for your business in a certain period.
Exempt motor vehicle allowance rates
You must use the correct rate when calculating your exemption for a particular financial year.
|Financial year||Rate per km|
|2019-20 to 2020-21||$0.68|
|2016-17 to 2018-19||$0.66|
|2014-15 to 2015-16||$0.77|
|2010-11 to 2013-14||$0.75|
Approved calculation methods
There are 2 approved ways to calculate the number of exempt kilometres.
- Continuous recording method - add up the distances travelled for each business journey your employee makes. You must record the:
- odometer readings for the start and end of each journey
- purpose of the journey.
- Averaging method - if it is difficult to separate private and business use, you can calculate the vehicle's business use over a continuous period of at least 12 weeks and determine business kilometres as a percentage of the vehicle's total use. In those 12 weeks, you must record the:
- odometer readings for the start and end of each business journey undertaken by the employee during the averaging period
- purpose of each business journey
- the distance travelled by the employee during the averaging period in the course of all business journeys
- the distance travelled by the vehicle during the averaging period
- odometer readings immediately before and after the replacement or recalibration.
Night Pty Ltd uses the averaging method to calculate Bob's exempt kilometres for October 2020. Bob's log book from 1 July 2020 to 23 September 2020 shows that he travelled 50,000km. The business portion was 40,000km. In October, Bob travels 20,000km in total and receives an allowance of $18,000.
- Bob's percentage of business use is 40,000km ÷ 50,000km = 80%
- Exempt kilometres for October is 20,000km × 80% = 16,000km
- Using the exempt rate of $0.68, Night Pty Ltd could receive an exemption on an allowance of $0.68 × 16,000km = $10,880
- Therefore, Night Pty Ltd only needs to include as taxable wages $18,000 – $10,880 = $7,120
Applying to use another calculation method
If the continuous recording and averaging methods are not practical for you, you can suggest your own method of calculating the exempt kilometres and ask us to approve it. Approval of your calculation method is at the discretion of the Commissioner of State Revenue.
If you pay your employee an allowance for accommodation expenses (that includes a meals and incidentals component) when they must spend a night away for business, all or part of this allowance may be exempt.
You must use the correct rate when calculating your exemption for a particular financial year:
- For allowances paid to employees that include accommodation as well as meals and incidentals, use the exempt accommodation allowance rates.
- For allowances paid to employees for meals and incidentals only (where you paid the hotel directly for accommodation), use the exempt meals and incidentals rates.
Exempt accommodation allowance rates
|Financial year||Rate per night|
Different rates apply for truck drivers. Read the public ruling on overnight accommodation allowances paid to truck drivers (PTA024).
Exempt meals and incidentals allowance rates
|Financial year||Meals||Incidentals||Daily total|
Night Pty Ltd pays Bob an accommodation allowance of $300 per night while he is away for a business trip for 3 nights in July 2020.
- Total allowance Bob receives is $300 × 3 = $900.00
- Exempt component is $283.45 × 3 = $850.35
- Taxable component is $900 – $850.35 = $49.65
A living-away-from-home allowance (LAFHA) is usually paid where the employee has moved and taken temporary residence away from their usual place of residence.
This allowance is a fringe benefit and, for payroll tax purposes, the value of the allowance is determined by the Fringe Benefits Tax Assessment Act 1986 (Cwlth).
If the allowance does not qualify as a LAFHA and it is not exempt as an accommodation allowance, then it is a taxable wage for payroll tax purposes.
Night Pty Ltd pays Mary a cash LAFHA of $1,000 per month to cover her additional accommodation and food expenses for the next 6 months, because Mary's job requires her to move away from home.
- Total allowance Mary receives is $1,000 × 6 = $6,000
- Allowance is a fringe benefit and is taxable under the Fringe Benefits Tax Assessment Act.
- Find out about JobKeeper payment subsidies and payroll tax.
- Learn about exemptions for contractors and employment agents.
- Read these public rulings on allowances:
- Learn about fringe benefits tax.
I want to...
- Payroll tax: Introduction to payroll tax in Queensland 28/10/2020
- Mentoring for Growth day - Logan 29/10/2020