A living away from home allowance (LAFHA) may be paid by a business who requires it’s workers to live away from home to perform their employment obligations. This allowance is subject to Fringe Benefit Tax (FBT) on its taxable amount and not treated as income under the PAYG scheme.

The goal of the LAFHA is to recover the extra costs of living away from home when required to do so by an employer in the course of performing their work related tasks. Within the PAYG system, the allowance would be retained at source and taxed if the employee has altered their traditional place of abode.

The Taxable Value of the Living Away From Home Allowance

Existing tax provisions allow you to deduct amounts relating to reasonable food and accommodation components which are also known as exempt food and exempt accommodation components.

The allowance paid to compensate a worker for additional food expenses in the alternate locale is called the exempt food component. Reasonable and defensible amounts are normally accepted, even though the Australian Tax Office doesn’t provide strict guidelines for the computation of this amount.

Amounts obtained through the following are considered reasonable and defensible:

• Comparison of food expenses at the alternate and home locations by calculating the difference between the average expenses;

• ATO issues guidelines on a yearly cycle;

• indexes and guidelines of the Australian Bureau of Statistics setting estimated amounts of additional food costs in specific locations.

 

You should also consider factors relating to the exempt food component such as:

• The cost of food in the alternate location;

• the composition of the employee’s family at the beginning of the FBT year, the number and ages of each member; and

• the normal food costs in the home location.

 

In addition, you are allowed to deduct reasonable expenses for your accommodation in the alternative location which is known as the exempt accommodation component. Two points which impact on the total value of the allowance are the duties you have with the job and the make up of your family, if they are accompanying you in the alternate location.

LAFHA Declaration

The amount of living away from home allowance is not automatically recognised as such and you are required to submit a LAFHA declaration each FBT year to receive the tax concessions. The entire allowance will be taxed as fringe benefits if the declaration is not submitted.