The purpose of this Circular is to advise you of developments concerning the taxation of overnight travel and overtime meal allowances. Previous Circulars Nos 98-43, 98-45, 98-78, 98-96 and 99-41 refer.

Circular 99-41 advised that for the income years 1998/99 and 1999/2000 the Australian Taxation Office (ATO) had approved special arrangements for the NSW public sector that provided as follows:

The ATO will accept, without written evidence, claims by New South Wales public sector employees for expenses incurred up to the amount of overnight travel and overtime meal allowances currently being paid. This arrangement had regard to allowances paid under the Crown Employees (Public Service Conditions of Employment 1997) Award or other Awards in the NSW public sector that adopted similar rates of allowances;

Employees affected by this special arrangement do not have to satisfy the substantiation requirements in respect of overnight travel and overtime meal allowances and NSW employers do not have to deduct tax instalments from the allowances when paid; and

The full amount of the allowances is to be shown on employees' Group Certificates.

The ATO has now advised that these special arrangements will cease on 30 June 2000. The arrangements were always regarded as concessional and had regard to administrative difficulties experienced by Departments and agencies in changing systems to accommodate the taxation requirements. This argument can no longer be sustained.

The ATO has also advised that revised "reasonable allowance amounts" for overnight travel and overtime meal allowances will be published in June 2000 for 2000/2001.

It is expected that the ATO reasonable amounts will be increased and that the differences between the new ATO amounts and the current NSW Award rates will be minimal.

The practical effect of the ATO's decision is that:

Where the NSW Award rate exceeds the ATO reasonable amount, the difference should be taxed at the employee's marginal rate and the whole amount of the allowance paid should be shown on employees' Group Certificates. If the allowance paid does not exceed the ATO reasonable amount, then tax does not have to be deducted and the allowance does not need to be shown on Group Certificates.

When employees prepare their taxation returns for 2000/2001 they may choose to claim, as a deduction from their income, payments for overnight travel and overtime meal allowances. If an employee chooses to claim the full amount of the allowances paid (which exceeds the ATO reasonable amount) then substantiation of the full amount may be required by the ATO. If an employee chooses only to claim up to the ATO reasonable amount then no substantiation is required.

Departments and agencies should now plan for taxing of overnight travel and overtime meal allowances from 1 July 2000 where the Award rates exceed the ATO reasonable amounts.

Employees should be advised of these new arrangements in the event that they choose to keep a record and receipts of expenditure incurred on and from 1 July 2000 to assist substantiation of their claims for the 2000/2001 income year.

Currently the Public Employment Office and the Public Service Association are reviewing the existing rates of allowances. This review will have regard to the new ATO arrangements.

Any enquiries may be directed to Doug Cowell on telephone number 9228 3575.

C. Gellatly
Director-General