A tool allowance sits in your pay run at $40 a week because the award says so. A car allowance sits there because the employment contract says so. What neither document tells you is whether super applies on top, and the ATO’s own materials can look like they contradict each other on the answer. The withholding guidance suggests these allowances aren’t superable. The super rules say it depends.
Both are right, because super on expense allowances comes down to a test you apply, and it can produce different answers for the same allowance at different businesses.
The short version:
- Super doesn’t apply to an allowance you reasonably expect the employee will fully spend doing their job
- “Reasonably expect” means you’ve compared the allowance to the actual cost, with numbers, and kept a record
- If only part of the allowance will be spent, the rest is superable
- The test hasn’t changed under Payday Super, but a wrong classification now repeats every payday
If you’re after the full picture across every allowance type, our guide to which allowances are superable covers the lot. This article goes deep on the one category that trips employers up most.
What is an expense allowance?
An expense allowance is a payment you make to an employee expecting they’ll spend all of it doing their job. Tool allowances and fixed car allowances are the common examples: money paid to cover tools the employee buys or the cost of running their own vehicle for work. Because the payment is expected to be spent on work costs rather than kept as earnings, it isn’t treated as salary or wages, and super doesn’t apply to it.
Here’s how the common payment types compare:
| Payment | Superable? | Why |
|---|---|---|
| Tool allowance, fully spent on tools | No | Expense allowance: expected to be fully spent on the job |
| Tool allowance, only partly spent | Partly | Super applies to the portion not expected to be spent |
| Fixed car allowance covering genuine work driving | No | Expense allowance, if running costs match or exceed it |
| Fixed car allowance above the cost of work driving | Partly | Super applies to the amount above the deductible portion |
| Cents per kilometre for actual work travel | No | Scales with genuine work use by design |
| Reimbursement of a documented expense | No | Never superable: it’s a repayment, no test needed |
| Allowance for working conditions (height, dirt, shift) | Yes | Paid for how you work, not what you spend, so it’s earnings |
The last two rows mark the boundaries. Reimbursements sit below the test, because the employee has already spent the money and you’re paying back a documented amount. Condition-based allowances sit above it, because nothing is being spent at all.
The test: will the allowance be fully spent on the job?
The ATO’s ruling on ordinary time earnings (SGR 2009/2) puts it this way: allowances paid with a reasonable expectation that the employee will fully spend the money in the course of providing their services are not salary or wages. No salary or wages means no super.
The phrase doing the heavy lifting is “reasonable expectation”. You can’t just label a payment a tool allowance and wave it out of your super calculation. You need a reasonable basis for expecting the money will actually be spent, and a reasonable basis means numbers: what the expense costs, compared to what the allowance pays.
If you can’t form that expectation, or the allowance clearly pays more than the expense costs, the allowance (or part of it) is superable.
What the ATO told us when we asked
The apparent conflict between the super ruling and the ATO’s withholding guidance bothered us enough that we wrote to the ATO about it. Their written response is worth having on record, because it confirms the practical version of the test.
Tool allowances
The decision is the employer’s to make. You need to decide whether you expect the allowance will be fully spent on deductible items. You don’t have to believe every single dollar will be spent by every single worker every year, but there needs to be a genuine expectation that tools will be purchased and that the allowance is a reasonably appropriate amount to cover them. The ATO suggested it’s good practice to involve the employee in forming that view.
Their response also confirmed the split treatment: if you determine that only part of the allowance is expected to be spent on deductible purchases, the difference is subject to super.
Car allowances
The ATO confirmed that a car allowance paid as a fixed amount (rather than cents per kilometre) works the same way as a tool allowance. You estimate the portion that will be deductible to the employee, and super doesn’t apply to that portion. Whatever sits above it is superable.
PAYG withholding still applies to the full fixed allowance, which is a separate question from super, and it’s exactly this separation that makes the ATO’s documents look contradictory when they aren’t.
A worked example: splitting a tool allowance
Connor is a carpenter whose enterprise agreement pays a tool allowance of $40 a week. His employer wants to know how much of it attracts super.
- Annual allowance: $40 × 52 = $2,080
- Expected tool spend: based on what Connor and his workmates typically buy and replace in a year, the employer forms a reasonable expectation of $1,200 in deductible tool purchases
- Non-superable portion: the $1,200 expected to be fully spent attracts no super
- Superable portion: $2,080 − $1,200 = $880 a year
- Super payable: $880 × 12% = $105.60 a year
Since super is now calculated every payday, the split runs through each pay. Of Connor’s $40 weekly allowance, $23.08 is treated as the expense portion and the remaining $16.92 attracts super of $2.03 a week.
Small numbers per pay run, but they compound across a workforce and a financial year, and an incorrect classification in your pay categories repeats itself every single payday.
Car allowances: fixed amount versus cents per kilometre
A fixed car allowance, say $120 a week regardless of use, needs the same reasonable-basis exercise. The expected work kilometres and the vehicle’s running costs are your starting point, and the ATO’s cents per kilometre rate (91 cents for 2026–27) gives you a defensible cost figure.
If Mel does site visits totalling around 150 work kilometres a week:
- Running costs: 150 km × 91c = $136.50 a week
- Her fixed allowance: $120 a week
- The costs exceed the allowance, so her employer can reasonably expect it will be fully spent. No super applies.
If her role changes and the driving drops away, that expectation needs revisiting.
An allowance paid as cents per kilometre for kilometres actually driven is a cleaner case. Because the payment scales with genuine work travel at a rate built to reflect running costs, it’s an expense allowance by design, and no super applies. The kilometres do need to be genuine business travel, and home-to-work commuting doesn’t count.
What Payday Super changed, and what it didn’t
What hasn’t changed:
- The expense allowance test itself, straight out of SGR 2009/2
- Expense allowances stay outside the super calculation
- The split treatment for partly-spent allowances
What has, since 1 July 2026:
- Super is calculated on qualifying earnings each payday, not ordinary time earnings each quarter, under Payday Super
- Contributions must reach the employee’s fund within 7 business days of payday
- STP reporting itemises allowances by category every pay run, so your classification is visible to the ATO in every submission
The timing shift raises the stakes on classification. Under the quarterly system, a misclassified allowance could be caught and corrected before the quarter’s super went out. Now the error ships with every pay run. Getting your pay categories right once is a much smaller job than unwinding a year of per-payday shortfalls.
How to document your reasonable basis
The test is only as strong as the evidence behind it, and if the ATO ever asks, “we’ve always done it that way” won’t hold. What will:
- Cost data: expected work kilometres, vehicle running costs or the cents per kilometre rate, typical annual tool spend for the role
- The comparison: cost figures set against the allowance amount, showing the allowance is a reasonably appropriate amount for the expense
- The employee’s input: the ATO itself suggests involving employees in the estimate, and their actual spending is the best evidence you can have
- A recorded decision: a short file note stating the allowance, the expected expenditure, the superable portion (if any) and the date you formed the view
- An annual review: run the check each 1 July, when the cents per kilometre rate, award allowance amounts and your employees’ circumstances may all have moved
Get the classification right once
Expense allowances are one of the few areas of super where the answer genuinely depends on your circumstances rather than a lookup table, which is why the same tool allowance can be superable at one business and not the next. Apply the test, record your basis, and split the allowance where only part of it will be spent.
If you’d rather not carry that judgement alone, this is bread-and-butter work for us. Through our managed payroll services we set up and maintain allowance classifications across awards, agreements and Payday Super reporting every week. Call us on 1300 851 133 or send us an enquiry below.
At Alltech, we manage payroll for 150+ businesses across Australia – including the complexities of allowances, Awards, and superannuation compliance. Get in touch to find out how outsourced payroll works and whether it’s right for your business. This article is general information only and doesn’t constitute financial or tax advice.