Generally an allowance is a payment of a predetermined amount to cover an estimated expense and the unused amount is not required to be repaid. Most types of allowances paid by employers to employees are required to be shown on the PAYG summaries and declared as taxable income.
There are payments which will be considered reimbursements when the employee is repaid for an exact amount incurred. If a payment is made in advance it may still be a reimbursement if the recipient is expected to repay any unused amounts.
There are various types of allowances and the Australian Tax Office has released a series of rulings dealing with various types of allowances and the deductibility and non-deductibility of work related expenses which are related to allowance payments. An employee is entitled to work related deductions under the general deductions provisions and also under specific occupations rulings. When an allowance is paid to an employee there is an expectation that the amount of the expenditure will be incurred.
As an example where an employee is reimbursed for the use of the motor vehicle on the employer’s business the amount of the reimbursement is an assessable income for the employee, however an allowable deduction can be claimed for car expenses incurred.
Should you require further information please do not hesitate to contact us.
Bridge Accounting & Taxation Services
Ph: 1300 508 631