living-away-from-home allowances (LAFHA)
Employers may compensate their employees for additional expenses incurred and disadvantages suffered when the job requires the employee to live away from their normal residence. This is known as a Living-Away-From-Home Allowance (LAFHA) and is subject to Fringe Benefit Tax (FBT).
For a payment to an employee to be considered a LAFHA, both of the following conditions must be met:
- the employee maintains a home in Australia that continues to be available for their immediate use and enjoyment while they are living away from home and it is reasonable to expect that they will resume living there when they cease living away from home
- they are in the first 12 months of living away from home, excluding any pauses for returning to their usual place of residence or absences such as holidays.
Payment for travelling in the course of employment with no actual change in job location is a travel allowance rather than LAFHA. It is important to distinguish the two as both allowances have different tax implications.
LAFHA is subject to FTB. The taxable value of the LAFHA is the total amount of allowance paid to the employee, reduced by:
- the exempt accommodation component, and
- the exempt food component.
To be eligible to reduce the taxable value of the LAFHA by the amount of the exempt accommodation and food components, the employee is required to provide the employer with a declaration in the approved form. This must be done prior to filing a FBT return. The ATO website gives more details on LAFHA.
more articles about: pay and reward
- termination schemes
- employee share schemes (ESS)
- employed or self-employed?
- minimum wage
- salary sacrifice
- living-away-from-home allowances (LAFHA)
- working outside Australia
- key dates for your tax diary
- workers compensation insurance premiums
- trends and predictions for pay and reward
- principles of rewarding employees
- different generations – different motivations
- fringe benefits tax
- taxing the benefits of vehicles
- employers’ responsibility for tax and superannuation
- establishing the right reward system
- overtime, penalty rates and loadings
- pay: not the only reward