Payroll Q&A – Telecommunications allowance paid to councillors

Our councillors receive an annual telecommunications allowance that is paid fortnightly towards their telecommunications needs. How should this allowance be treated from a salary/wages, pay-as-you-go withholding (PAYGW) and superannuation perspective?

Question

Does this allowance qualify as an ‘allowance by way of unconditional extra payment’, which would require the payment to be included in salary/wages and be considered ordinary times earnings (OTE)? If so, would the councillors be subject to income tax on this amount with superannuation payable on the allowance?

Alternatively, would the allowance qualify as an ‘expense allowance expected to be fully expended’ given the councillors are required to provide their own phone? In this instance, we understand that the allowance is not classified as salary/wages and is not OTE (and, therefore, no superannuation is payable on the allowance).

Additionally, should the amount be separated out on their annual payment summary/ATO income statement as an allowance?

Answer

The answers to your questions above will be impacted by whether you have elected (via unanimous resolution) to treat the councillors as employees for PAYGW (which then extends to superannuation and FBT). We canvassed this issue in a previous FBT Q&A — Are mayors and councillors employees for FBT purposes?

Regardless of whether you have made this election, the allowance will constitute income to the councillors (as it is associated with rewards for personal services rendered to the council) and should be disclosed in their tax return.

However, if such an election was not made, then no PAYGW, superannuation or FBT will apply.

Alternatively, if such an election was made:

PAYGW will apply to the allowance.
The allowance sounds more like an expense allowance expected to be fully expended, although this will ultimately depend on the terms of the allowance. Assuming this is the case, the allowance will not qualify as OTE unless you have otherwise agreed with the councillor that you will include such amounts in their superannuation base.
The allowance will not be subject to FBT.

For completeness, please refer to Table 1b (specifically the row ‘deductible expenses’) of QC 51680 for information on the Single Touch Payroll (STP) treatments of allowances.