What is the difference between an allowance and a reimbursement?
To make it clear what is considered an allowance and what is considered a reimbursement for withholding purposes, we are here to share both of their meanings as defined by the ATO.
Allowances are separate and identifiable payments made to an employee for:
- Enduring specific working conditions, i.e. danger, height or dirt
- Holding special qualifications or performing special duties, i.e. first aid certificate or safety officer
- Expenses that can’t be claimed as a tax deduction by the employee, i.e. normal travel between home and work
- Work-related expenses that may be claimed as a tax deduction by the employee, i.e. travel between work sites.
Reimbursements are payments made to a worker for actual expenses that they have already incurred, and the employer may be subject to fringe benefits tax (FBT). If the reimbursement is covered by FBT, the amount is not assessable income to the employee, and the employee cannot claim a deduction for the expense.
For more information, visit the ATO website.