N.B. An updated article explaining the payment classification options of pay categories for STP Phase 2 reporting can be accessed here. Please ensure you follow the rules specified in the 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.
The ATO preferred method for 'Other' allowances (expense allowances only that are not otherwise separately itemised) is to report a category code, using a set of ATO predetermined category codes. When it comes time for employees to lodge their tax returns, this will assist the ATO in getting a clear picture of the allowances paid to the employee.
Where an expense allowance is not specifically addressed by any other allowance category in the following article, then it should be classified as "Allowance - Other". For example, car allowances other than cents per kilometre, or laundry allowances for conventional clothing would fall into this classification.
When creating a pay category for "Allowance - Other", you must enter an allowance description as shown below. When lodging STP events, the allowance description will be used instead of the pay category name.
Allowance Descriptions
The following descriptions are strongly suggested by the ATO and so should be used as the 'Allowance Description':
G1 General
This allowance description would be used for any deductible expense, such as:
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Laundry allowance for laundering items that are not approved uniforms that are still deductible expenses;
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Domestic or overseas travel allowances and overseas accommodation expenses that are deductible expenses; and
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Other deductible expenses not otherwise separately itemised.
H1 Home Office
This allowance description would be used for any working from home allowances that may be paid for the purpose of purchasing equipment or connecting to communication services, such as home office equipment and phone/internet. This type of allowance must not include specific allowances paid for the purchase and maintenance of specific tools and equipment that would be reported as a tool allowance.
ND Non-deductible
This allowance description would be used for any non-deductible expense allowances where the PAYG is as per salary and wages. For superannuation guarantee purposes, these allowances are assessed on their relevance to the ordinary span of hours or outside the span of hours. This category includes those allowances from the separately itemised allowances that have failed to meet the conditions of those allowances and are non-deductible, such as for:
- Cents per km payments for private travel such as travel between home and work;
- Allowance payments for the cost of transport for private purposes;
- Laundry allowance for the cost of laundering uniforms for private purposes;
- Allowances paid for travel that is for private purposes;
- Part-day travel allowances;
- Allowances paid in relation to equipment used for private purposes; and
- Any other allowance that is for a private purpose or other non-deductible reason.
T1 Transport/Fares
This allowance description would be used for any deductible expense, such as:
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Award transport payments where the historical award cannot be sourced from the current award transport payment or is not traceable to a historical award in force on 29 October 1986; and
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Fares allowances paid to compensate the transport costs for business purposes that isn’t sourced from an award, such as an individual contract for services or business policy.
U1 Uniform
This allowance description represents allowances paid to employees for the employee to purchase approved uniforms. This description must not be used for any reimbursements of uniforms but must represent allowances paid to employees for the employee to purchase the uniforms. The employee may claim their actual expenses on their annual income tax return, with relevant substantiation.
V1 Private Vehicle
This allowance description would be used for any deductible expense, such as:
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Cents per kilometre for mileage allowances paid for other vehicles such as motorcycles; and
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Car allowances paid as a fixed amount, regardless of the kilometres travelled or without reference to award transport payments.
If you are unsure of what your allowances should be classified as, please consult with the ATO, your payroll advisor, bookkeeper or accountant.
If you have any questions or feedback, please let us know via support@yourpayroll.com.au.
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