Confusion seems to exist regarding what is a reimbursement and what is an allowance. In a number of cases this confusion can be generated by the employer themselves.
Basically, an allowance is an amount of money included in your pay packet to cover out-of-pocket expenses that you may have incurred in the course of carrying out your employment.
They may be in the form of a travel allowance if you use your own vehicle for work duties, laundry allowance or uniform allowance if you are expected to maintain a corporate uniform or even a meal allowance if you work overtime and are obliged to have a meal at or near work.
These allowances are often generated from state or federal awards and are included on your PAYG Summary (group certificate) as a specified allowance. Generally they are continual in nature and are paid as part of your pay packet or in relation to your timesheet.
Tax Implications of allowances
Allowances are assessable income and will increase your gross income on which you are taxed. You are allowed to claim expenses against them as long as they were actually incurred.
Reimbursements are the paying back of business expenses that an employee may have incurred but generally tend to be of a one-off or specific nature. In many cases they are paid from petty cash and are always intended to be a business expense and never that of the employee.
Tax implications of reimbursements
Amounts that have been reimbursed by the employer are not reflected in the PAYG Summary as they are not assessable income to the employee. Therefore the employee cannot claim any expense in regard to it.
Bottom line: if it’s on your PAYG Summary as an allowance then – in most cases – you are entitled to claim the total amount of the expense that you incurred in relation to your work.