Private ruling: Whether there is an obligation to withhold PAYG from an allowance
Date of advice: 1 October 2015
Published: November 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is there an obligation on the entity to withhold from an allowance paid by the employer to employees under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)? | A1: Yes


Relevant legislative provisions: Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision: Summary: Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity) Further detail of the tax treatment for allowances under individual circumstances is covered by PAYG Bulletin No 1 (the bulletin). There are two tables in the bulletin. The first table lists the various types of allowances that a payee might receive and describes how these allowances must be treated by the payer, whereas, the second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld and their reporting on the payment summary. | Detailed Reasoning - First Table: The first table covers allowances which the payer is required to withhold from as follows: • paid for working conditions, qualifications or special duties • for non-deductible expenses • for being on-call; and • for expected deductible expenses such as: • tools • compulsory uniform or dry cleaning • overseas accommodation for deductible travel; and • motor vehicle for work-related travel, including cents per kilometre payments in excess of the Australian Tax Office (ATO) rate. | Detailed Reasoning - Second Table: The second table lists those allowances for which the Commissioner of Taxation has approved a variation of the amount required to be withheld. Allowance types such as the following are included: • award transport payments • laundry allowance for deductible clothing • award overtime meal allowances • domestic or overseas travel allowance; and • cents per kilometre car expenses payments using the approved rates where: • the usage is up to 5,000 business kilometres; and • the usage is in excess of 5,000 business kilometres. In this case the second table is not able to be used as the particular allowance has not been included in this table therefore the first table must be used. The entity paid employees an allowance for work-related activities therefore the entity is obliged to withhold from the full amount of the allowance. The quantum of the allowance paid to employees is irrelevant for withholding purposes. As the allowance is an allowance paid for working conditions, qualifications or special duties there is an obligation on the employer to withhold from the allowance. The allowance is to be included in the payment summary and the allowance amount is to be included in the gross payment. There is no requirement to show this allowance separately on the payment summary.

Relevant facts: The entity provides payroll services to various employers. | A client of the company employs workers who provide services for clients. | The employees receive an allowance for the services they provide under a relevant agreement.