Clarification of tax rules for some allowances paid to employees

The tax rules for some allowances paid to employees have been clarified. Relocation payments, overtime meal allowances and sustenance allowances made to employees since the 2002-03 tax year are tax free for the employee, if the following criteria are met. These rules apply from the 2002-03 income year.

Relocation payments

Relocation payments are tax free for the employee if:

• the employee's relocation is to:
  • take up employment with a new employer
  • take up new duties at a new location with their existing employer, or
  • continue in their current position, but at a new location, and
• the employee's existing home is not within reasonable daily travelling distance of the new workplace (unless accommodation is provided as an integral part of the job), and
• the expense is on the list of eligible relocation expenses, and
• the payment reflects the actual expenditure incurred, and
• the expenditure is incurred before the end of the tax year following the year the employee relocates in.

Read our Determination DET 09/04 for more information about eligible relocation expenses.

Overtime meal allowances

Overtime meal allowances are tax free for the employee if:

• either the employee's employment contract specifies that they are eligible for a payment for overtime hours worked, or an employer has a policy or practice of paying an overtime meal allowance, and
• the allowance reflects the actual expenditure incurred by the employee, or is a reasonable estimate of the expected costs likely to be incurred by the employee or group of employees, and
• the employee has worked more than 2 hours overtime on the day of the meal.

For overtime meal allowance, overtime means the time an employee works for an employer beyond their ordinary hours of work as set out in their employment agreement.

Sustenance allowances

Sustenance allowances are tax free for the employee, when the employer has an established policy or practice of paying sustenance allowance and:

• the employee works a minimum of 7 hours on the day, and
• their employment requires them to:
  • work outdoors and away from their employment base for most of the day, and
  • undertake a long period of physical activity in travelling on foot or by bicycle, and
• it's not practicable for the employer to provide sufficient sustenance when the employee is working outdoors, and
• the allowance recognises:
  • the demanding physical nature of the employee's work, and
  • that the employer would normally provide tea, coffee, water, or similar refreshments at the employment base in the course of their business.

Date published: 02 Nov 2009

Back to top