What is the difference between an allowance, a reimbursement, and a fringe benefit?
Understand how allowances, reimbursements and fringe benefits are treated differently for tax and reporting.
Summary
An allowance is typically a set amount paid to cover an expected expense. A reimbursement is a payment for the actual amount of an expense already incurred. A fringe benefit is a non-cash benefit provided in place of, or in addition to, salary. Each has different tax treatment.
What this means
Allowances are generally paid regardless of whether the employee actually incurs the expense, and are usually assessable income for the employee. Reimbursements pay for a specific expense the employee has incurred on the employer’s behalf and may attract FBT for the employer, depending on the type.
Fringe benefits are non-cash benefits (such as a company car or entertainment) and are generally subject to FBT paid by the employer. The employee is not directly taxed on the benefit, but the grossed-up value may still be reportable through the RFBA. Correctly classifying a payment or benefit is important because it affects PAYG withholding, FBT, super and reporting requirements.
Typical actions
- Identify whether the payment is for a specific incurred expense or a general amount.
- Classify each payment as an allowance, reimbursement, or fringe benefit.
- Apply the correct PAYG withholding treatment based on the classification.
- Determine whether FBT applies to a benefit or reimbursement.
- Report correctly through Single Touch Payroll and FBT returns.
Official ATO sources
Last checked: 25 August 2026
Allowances and reimbursements
Explains the difference between allowances and reimbursements for employers.
Employment allowances
Explains how allowances and reimbursements affect the employee.
Related questions
- What is FBT?
- What is a reportable fringe benefit amount?
- What is salary sacrifice from an employer’s perspective?
- What is PAYG withholding?
Important notice: Tax Clarity is an independent information tool. This page provides general information based on official sources. It does not provide tax, legal, financial, or accounting advice. Tax rules can change, and how they apply depends on your circumstances. For advice about your situation, speak with a registered tax agent or qualified professional.
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