A living away from home allowance (LAFHA) may be paid by a business who requires it’s employees to live away from home to perform their employment tasks. This allowance is subject to Fringe Benefit Tax (FBT) on its taxable value and not treated as income under the PAYG system.
living away from home allowance takes into account the inconvenience and disadvantage causing a higher cost of living when a worker must live away from home because of their work. The allowance would be taxed as income at source within the PAYG system if the wage earner’s customary home address has changed.
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.
Compensation paid to the worker in the alternate location for additional food expenses is know as the exempt food component. Defensible and reasonable amounts are usually consented to, even though the ATO doesn’t provide strict guidelines for the calculation of this amount.
Amounts obtained through the following are considered reasonable and defensible:
• ATO issues guidelines on a yearly cycle;
• comparison of food expenses at the alternate and home locations by calculating the difference between the average expenses;
• indexes and guidelines of the Australian Bureau of Statistics setting estimated amounts of additional food costs in specific locations.
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You should also consider factors relating to the exempt food component such as:
• The composition of the employee’s family at the beginning of the FBT year, the number and ages of each member;
• the cost of food in the alternate location; and
• the normal food costs in the home location.
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In addition, you are allowed to deduct reasonable expenses for your accommodation in the alternative location which is known as the exempt accommodation component. This amount is arrived at after taking into account your role in the company or entity and the composition 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. Fringe benefits tax will apply to the entire allowance if the declaration is not submitted.