Living Away From Home Allowance (“LAFHA”) in Australia
The LAFHA is an allowance which is..
- paid directly by an employer to an employee
- to compensate their additional non-deductible expenses
- because of a requirement to live away from their usual place of residence to do their job.
LAFHA rates meeting this description are a fringe benefit, but are only taxable as such if the benefits exceed “reasonable” limits.
Fringe benefits tax is paid by the employer, and employees do not directly pay tax on amounts which are subject to FBT. However remuneration package calculations will normally take the FBT impact into account as part of the employer’s total cost, negotiated in combination with the employee’s after-tax value.
Note: the spreadsheet LAFHA calculator that was previously made available here has been withdrawn.
Reasonable Food and Drink Components (per week) within Australia *
|FBT Year Ending 31 March:||2020||2019||2018||2017||2016||2015||2014||2013||2012||2011|
|One Adult + One Child||$337||$332||$309||$303||$302||$295||$292||$325||$301||$296|
|Two Adults + One Child||$472||$465||$433||$424||$423||$413||$409||$450||$419||$412|
|Two Adults + Two Children||$540||$532||$495||$485||$484||$472||$468||$450||$419||$412|
|Two Adults + Three Children||$608||$599||$557||$546||$545||$531||$527||$524||$488||$480|
|Three Adults + One Child||$607||$598||$557||$545||$544||$531||$526||$524||$488||$480|
|Three Adults + Two Children||$675||$665||$619||$606||$605||$590||$585||$599||$558||$549|
|Additional Adults – each||$135||$133||$124||$121||$121||$118||$117||$150||$140||$138|
|Additional Children – each||$68||$67||$62||$61||$61||$59||$59||$75||$68||$67|
Children are those aged under 12 at the beginning of the year
* Rates applicable when outside Australia are detailed in the annual Tax Determination linked at the top of each column
The LAFHA tax exemption explained
Living Away From Home amounts paid within reasonable limits, do not give rise to a taxable LAFHA fringe benefit and are not taxable in the hands of the employee.
The tax exempt parts of a LAFHA allowance are:
- “Reasonable” accommodation costs; and
- “Reasonable” food costs (see schedule below)
- less “normal” (statutory) food costs deemed to be $42 per week for adults (12 years old and above), and $21 per week for children (under 12 at the beginning of the year).
Statutory food amounts are set out in the Fringe Benefits Assessment Act and the Reasonable Food and Drink Components (per week) are reviewed annually, as set out in the table above.
How FBT is calculated on Living Away from Home Allowances
For any part of allowances which exceed the exemption levels, a taxable fringe benefit arises. The taxable value is grossed-up before applying the FBT rate to derive the tax payable.
Taxpayers whose salary level is near or below the highest marginal tax rate should compare the after-tax result of the taxed allowance, with that of an equivalent amount received as salary. There’s more here about salary sacrifice.
Living Away From Home Allowance Declarations
Essential declaration: To reduce the taxable value of a LAFHA fringe benefit, the employer must obtain a declaration from the employee.
The current ATO samples for a Living Away From Home Allowance declaration are here: LAFHA Declarations.
In general, declarations are required before lodgement of the employer’s FBT return, or by 21st May following the FBT year end (which is 31 March).
Whether an employee is considered to be actually “living away from home”, and therefore eligible for tax exemption on their LAFHA, is based on relevant facts, one of which is the period away from home. See: TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses?
For an employer, FBT (Fringe Benefits Tax) arises on allowances, or any part of allowances, which are not tax exempt or not otherwise deductible. The tax advantage of an eligible LAFHA comes from the compensation for “reasonable additional” food and accommodation expenses being tax-free, with potentially little or no FBT impact.
Such expenses would otherwise be considered private and non-deductible, therefore having to be funded from ‘after-tax’ income, or attracting FBT.
What LAFHA is not..
A Living Away From Home Allowance differs from a Travelling Allowance.
A travelling allowance is considered to be compensation for costs incurred in the course of performing duties, which forms part of the employee’s assessable income (against which deductions may be claimable) and is thus not a fringe benefit.
As a “practical general rule” the Tax Office takes the view that being away from home for 21 days or less is more likely than not to be “travelling” than Living Away From Home. Current views (in replacement of MT 2030) are contained in Draft Taxation Ruling TR 2017/D6.
Relocation expenses, which are incurred in connection with a permanent change of an employee’s location, are also not considered to form part of the expenses of Living Away From Home.
An allowance which is not a LAFHA is taxable in the hands of the employee (unless otherwise exempt or excluded).
Reasonable Food Components for 2013-14 – transitional measure
The tables in Tax Determination TD 2013/4 set out (as above) the reasonable amounts for food and drink expenses incurred by employees who are living-away-from-home during the fringe benefits tax year commencing on 1 April 2013 and applicable for the FBT year to 31 March 2014.
The calculation methodology resulted in some reductions over the previous year, and consequently as a transitional measure, where there an existing employment agreement was in force as at 27 February 2013 that specifies a rate in Taxation Determination TD 2012/5 and that employment agreement is not varied in a material way or renewed, the rates in TD 2012/5 will continue to be accepted by the Commissioner as reasonable – see TD 2013/4 paragraph 19.
Rule changes from 1 October 2012
The criteria for the Living Away From Home Allowance tax concession (LAFHA) changed under new rules which took effect from 1 October 2012.
Note: An original proposal for Living-away-from-home allowance to be treated as an expense allowance, and therefore assessable income of the employee rather than a fringe benefit, did not go ahead.
Key points from the October 2012 amendments:
- Both permanent and temporary residents (except FIFO employees) need to maintain a home for their own use in Australia that they are required to live away from for work, to be able to access the tax concession;
- There will be a 12-month time limit (except FIFO employees) on how long individuals can access the tax concession; and
- All individuals will need to substantiate their reasonable accommodation costs, and also food and drink if they exceed the guideline amounts.
The intention is to remove the tax concession for employees who aren’t maintaining a second home in Australia, or are maintaining 2 homes indefinitely.
FIFO and DIDO
The proposed changes are not intended to affect “fly in fly out” arrangements, or the tax treatment of other short-term (i.e. usually up to 21 days) travel and meal allowances.
Fly-in fly-out or drive-in drive-out employees do not have to maintain a home in Australia and the concessional treatment is not limited to 12 months. These employees still have to substantiate expenses incurred on accommodation, and food or drink beyond the Commissioner’s reasonable amount and provide the employer with a declaration relating to living away from home.
These rules apply from 1 October 2012 to new arrangements after 7:30pm (AEST) on 8 May 2012, or from 1 July 2014 for pre-existing arrangements (i.e. arrangements which are not materially varied).
Reasonable Food and Drink Determination 2013-14
In line with the amendments a fresh Reasonable Food and Drink determination has been issued as TD 2013/4 providing guidance for the year 1 April 2013 to 31 March 2014. However – under transitional measures the previously released TD2012/5 can continue to apply to arrangements which are not materially altered or renewed.
Impact on non-residents – 457 visa holders
The tightened rules from 1 October 2012 potentially significantly affect non-resident employees, typically 457 (Temporary) visa holders, who are much less likely to meet the “second home in Australia” requirement. The 12 month limitation poses a challenge in framing commercial or project arrangements which have or require a longer time span.
This page was last modified 2018-12-18