Travel allowances and per diems
What is a travel allowance?
Reimbursing employees for travel expenses can be a time consuming hassle, especially if they travel quite frequently.
If this sounds familiar, it’s worth understanding the alternative – paying your travelling team members a daily allowance instead of reimbursing them later. You might have heard this called a “travel allowance” or a “per diem”.
This is only an option if the travel is overnight (not just a day trip). Typically, it’s easier from an admin point of view as it removes the need to handle receipts as long as you’re operating within the rules.
The main rules are the ATO’s guidelines for Reasonable Allowances to cover travel costs. Basically, these guidelines say that if the travel allowance you pay your team member does not exceed the Reasonable Allowance, then it doesn’t need to appear on your team member’s payment summary, and you don’t need to withhold tax or pay super on it. Your team member can declare the travel allowance as income and deduction (so there is a zero net effect) in their tax return. Plus, as long as they don’t want to claim a different amount, they don’t need to include it in their individual tax return at all.
Just a reminder that we’ve written this article to help you understand travel allowances. Please don’t take it as personal tax or financial advice.
The employer’s perspective
As outlined above, if the travel allowance that you pay a team member is within the ATO’s Reasonable Allowances guidelines, it doesn’t need to appear on their payment summary (formerly known as a group certificate).
So how is it handled? We would typically pay a team member a travel allowance via a separate ‘supplier bill’ (in which the ‘supplier’ is the employee). For the sake of clear record keeping, we’d usually put the location’s name in the bill description and the number of days in the ‘quantity’ field of any accounting software. GST doesn’t need to be paid on this either.
The employee’s perspective
If you receive (the reasonable) travel allowance as a payment via the process explained above, and you’re not claiming any different travel deduction expense in your individual tax return, you’re done.
If you’ve been paid your travel allowance via payroll and it appears on your payment summary (formerly known as a group certificate) you’ll need to declare this as income. If you’re not wanting to claim any different travel deduction expense, you would simply declare the travel allowance amount as a deduction (so there is a zero net effect).
If you want to claim a different travel expense amount as a deduction, you then need to claim any travel allowance income you also receive. You can then claim any substantiated travel expenses.
What about a travel diary? If you’re simply receiving the Reasonable Allowance amount, you are not required to keep a travel diary but you are required to keep overseas accommodation records. It can also be worth keeping copies of itineraries and/or boarding passes as evidence of your travel, should you need it.
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