N.B. An updated article explaining the payment classification options of pay categories for STP Phase 2 reporting can be accessed here. If you are reporting via STP, please ensure you follow the rules specified in the updated article when configuring and/or updating the payment classification of your pay categories prior to the commencement of Phase 2 reporting, being 1 January 2022.
Specific types of allowances are to be separately itemised on the Income Statement, similar to what currently occurs with payment summaries. The difference with STP however, is that the separately itemised allowances are to be grouped and reported by category.
The rules for categorising allowances are aligned with the ATO's Withholding for allowances tables that can be accessed here.
To edit any pay category settings go to Payroll Settings > Pay Categories. Click on the pay category name and then click on the "Payment Classification" drop down list. You will notice the additional allowance classifications added to this list:
Existing allowance based pay categories whose payment classification was set as "Allowance" is now defaulted to "Allowance (Other)".
How to classify allowances
Using the ATO's methodology, each allowance category relates to one of the six Withholding for allowances table. We have provided an explanation of each allowance below:
Table 1: STP pay events for types of allowances an employee might receive
Where an allowance is defined in the below table to be reported as part of gross payments, they are to be classified as "Default".
Examples of 'working conditions, qualifications or special duties' include:
- Crib, danger, dirt, height, site, shift or travelling time
- Trade, first aid certificate or safety officer
Examples of 'non-deductible expenses' include:
- Part-day travel (no overnight absence from employee's ordinary place of residence)
- Meals (not award overtime meal allowance or overnight travel allowance)
- Motor vehicle for non-deductible travel – e.g. home to work, including cents per kilometre payments
Where an allowance is defined in the below table to be reported as separately itemised allowances, they are to be classified as "Allowance (Other)". When creating a pay category for "Allowance (Other)", you are also able to enter an allowance description as shown below. An article with further information on allowance descriptions can be found here. When lodging STP Pay events, the allowance description will be used instead of the pay category name (if it has been specified) - in the absence of an allowance description, the pay category name will be used:
Examples of 'deductible expenses' include:
- Tools
- Compulsory uniform or dry cleaning
- Motor vehicle for work-related travel, including cents per kilometre payments in excess of ATO rate
- Overseas accommodation for deductible travel
Table 2: STP pay event for cents per kilometre car expense payments using the approved rate
Any allowance meeting the definition in the below table is to be classified as "Allowance - cents per km".
Table 3: STP pay event for award transport payments
Any allowance meeting the definition in the below table is to be classified as "Allowance - award transport payments".
Any allowance type defined in the below table to be reported as part of gross payments, is to be classified as "Default".
Table 4: STP pay event for laundry (not dry cleaning) allowance for deductible clothing
Any allowance meeting the definition in the below table is to be classified as "Allowance - laundry".
Table 5: STP pay event for award overtime meal allowances
Any allowance meeting the definition in the below table is to be classified as "Allowance - overtime meal".
Table 6: STP pay event for domestic or overseas travel allowance involving an overnight absence from employee's ordinary place of residence
Any allowance meeting the definition in the below table that would otherwise be itemised in the income statement, is to be classified as "Allowance - travel".
Examples here include domestic or overseas travel allowance above the reasonable limit and all overseas accommodation allowances.
If you are unsure of what your allowances should be classified as, please consult with the ATO, your payroll advisor, bookkeeper or accountant.