Accommodation allowances and payroll tax
Accommodation allowances paid to employees are liable for payroll tax in New South Wales. Learn if your business can claim an exemption.
What is an accommodation allowance?
An accommodation allowance is paid to cover an employee’s temporary accommodation costs from their usual place of residence.
Temporary accommodation means a continuous period:
- of no more than 21 days, or
- more than 21 days where the employee continues to maintain a domestic dwelling for the purpose of accommodating the employee and/or his or her family.
Living away from home allowance
A living away from home allowance (LAFHA) is different to an accommodation allowance. A LAFHA is paid where the employee is required to temporarily relocate their usual place of residence.
A LAFHA is a fringe benefit. Its value is determined by the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Read the fringe benefits page for more guidance.
If you have any questions about fringe benefits tax on LAFHAs contact the Australian Taxation Office (ATO).
If the LAFHA does not relate to living away from home, it will be treated the same as an accommodation allowance.
Please note
References to an employee include a person deemed to be an employee, such as a contractor under a relevant contract.
How accommodation allowances are treated for payroll tax
All allowances paid or payable to an employee are generally liable for payroll tax. See section 13 of the Payroll Tax Act 2007 (PTA).
Accommodation allowances are liable for payroll tax, but an exemption is available up to specified amounts. See section 30 of the PTA.
An accommodation allowance is not subject to payroll tax if the amount paid or payable is less than or equal to the exempt component. Payroll tax only applies to the amount exceeding the exempt component.
Read how to calculate the exempt component.
Sleepover allowances
Sleepover allowances are liable for payroll tax.
A sleepover allowance is paid when an employee is required to sleep overnight at their client’s premises.
It is paid:
- mainly in the disability and carer industry, and
- to employees to compensate them for the inconvenience of sleeping overnight at a client’s premises.
Truck drivers
You are generally not entitled to claim the exempt component of an accommodation allowance paid to truck drivers when the drivers sleep in their trucks.
However, the Chief Commissioner allows businesses to claim the exempt component in these circumstances if the following conditions are met:
- The allowance is paid according to the terms of an award.
- The amount is no more than the exempt rate for accommodation allowances under section 30 of the PTA.
If an allowance exceeds the exempt rate, the difference between the allowance and the exempt component is subject to payroll tax.
Accommodation allowance is not for temporary accommodation
Jim’s rental lease on a Sydney property has expired.
He does not renew the lease because his employer asked him to undertake an assignment in regional New South Wales (NSW) for 2 months. Jim returns to Sydney after the assignment is finished.
During the assignment Jim is paid an allowance that covers the:
- cost of accommodation
- meals, and
- incidentals.
The allowance is subject to payroll tax because it is not for temporary accommodation. Jim does not maintain a dwelling in Sydney while working in regional NSW.
Calculating the exempt component
The formula for calculating the exempt component of an accommodation allowance is:
E = N X R
Exempt component = Number of nights that an employee is absent from their usual place of residence x Exemption rate
Rates used to calculate the exempt component
The rates used to calculate the exempt component of an accommodation allowance are in the table below.
Each income tax financial year (FY) corresponds to a payroll tax FY.
Income tax FY | Daily domestic travel rate |
---|
1 July 2024 – 30 June 2025 | $318.90 |
1 July 2023 – 30 June 2024
|
$310.70
|
1 July 2022 – 30 June 2023
|
$289.15
|
1 July 2021 – 30 June 2022
| $285.65 |
1 July 2020 – 30 June 2021
|
$283.45
|
The rates:
- are determined by the ATO
- consist of accommodation, meals, and incidentals, and
- are based on the daily travel allowance expenses using the lowest capital city rate for the lowest salary band for the relevant FY.
In some instances, the accommodation is paid by the employer directly to the accommodation provider. The employee is only paid an allowance for meals and incidentals for the period of absence from their usual place of residence.
The allowances for meals and incidentals are exempt from payroll tax up to the respective ATO limits published for these types of payments. Visit the ATO website to see these limits, which are updated annually.
Common errors with accommodation allowances
Payroll tax audits have found these common errors relating to accommodation allowances and LAFHAs.
- Failing to declare an accommodation allowance which can be mistakenly classified as a LAFHA.
- Fully declaring an accommodation allowance instead of declaring the liable portion that excludes the exempt component.
- Failing to declare the liable portion of an accommodation allowance (the portion that exceeds the exempt component).
- Declaring reimbursements for travel costs incurred by employees.
- Mistakenly classifying a LAFHA as an accommodation allowance and failing to declare the taxable fringe benefits.
- Declaring a LAFHA twice, once as a component of wages and again as part of the taxable value of fringe benefits declared for payroll tax purposes.