What is a living-away-from-home allowance fringe benefit? 

A living-away-from-home allowance (LAFHA) benefit is the payment of compensation by an employer to an employee to compensate for additional non-deductible expenses, or additional expenses and other additional disadvantages suffered, as a result of the employee being required to live away from his/her usual place of residence in order to perform the duties of employment. 

This benefit can only be paid by an employer to an employee. Where a payment is made by an associate of an employer or where it is paid to an associate of an employee, the allowance will not be LAFHA. 

If the allowance provided is not a LAFHA allowance it will not be subject to FBT, however, it will be treated as salary or wages in the employee’s hands, and the employee would then have to satisfy the substantiation requirements of the ITAA in order to obtain a corresponding tax deduction against the allowance received. Such an allowance would be a meal, accommodation or car allowance. 

Note that the payment of a location allowance to an employee does not constitute the provision of a living-away-from-home allowance for fringe benefits tax purposes. Location allowances are customarily paid to attract employees to move or stay in a particular and often remote location.

1. Usual place of residence

The place at which a person resides or has sleeping accommodation is the ‘place of residence’ and it is usually close to the place where the person is permanently employed. 

In Tax Ruling MT 2030, the Australian Tax Office (ATO) considers an employee would be regarded as living away from his or her usual place of residence if he or she would have continued to live there except that they had to change residence in order to work temporarily for the employer at another locality, and will return to live at the former place of residence at the cessation of work at the temporary job locality. 

It should also be noted that MT 2030 considers certain occupations, which have a career structure, which requires regular transfers, e.g. teachers, police officers, bank officers. Transitory workers such as these will not be treated as living away from home where they move to live in proximity to the current workplace. 

An employee may be regarded as living away from home when transferred overseas or interstate for a limited period and where they are expected to return home at the conclusion of the posting. As a general rule, an allowance period for up to 21 days will be treated as a travelling allowance and not as a living-away-from-home allowance. 

2. Length of Time 

How long a person can live away from their usual place of residence and still be considered to be living away from home for FBT purposes has been the subject of much debate. The ATO has stated that each case would have to be taken on its merits. Traditionally, four years is an acceptable period of time for an expatriate to be living away from home and one year for an Australian National transferring interstate, to be living away from home. However in certain circumstances, a longer period could apply based on statements made by the ATO. 

The taxable value of LAFHA fringe benefit 

The taxable value of the benefit is the amount of the allowance paid reduced by: 

the exempt accommodation component; and/or
the exempt food component.

3. Exempt accommodation component 

This refers to that part of the allowance which can be considered to be reasonable compensation for the additional cost of accommodation of the employee (and the employee’s family, where applicable) near the employee’s place of work. That is, compensation for the additional accommodation expenses incurred while living away from the usual place of residence. 

The employee must complete a declaration stating that he/she was required to live away from home and give it to the employer before the date of lodgement of the annual FBT return. 

4. Exempt food component 

The excess over ‘normal home food costs’ that are considered reasonable compensation for additional food expenses incurred. 

The taxable value of the living-away-from-home allowance fringe benefit is further reduced by any exempt food component. The allowance is reduced by the excess of the food component over the ‘normal home food costs’. ‘Normal home food costs’ are calculated by reference to statutory food amounts. These are $42 per adult per week and $21 per week for each child under 12 years of age on 1 April each fringe benefits tax year. 

The Commissioner sets out the reasonable food components of living-away-from-home allowances received by expatriate employees for the 1999/2000 FBT year in Taxation Determination TD 1999/3. 

The reasonable food components are as follows: Persons Receiving Allowance 
Per Week 

• One adult - $141 
• Two adults - $227 
• Three adults - $255 
• Two adults and one or two children - $255 
• Two adults and three children - $297 
• Three adults and one child - $297 
• Three adults and two children - $339 
• Four adults - $339 

Adults for this purpose are persons aged 12 years or more.

For the 2000 FBT year, where there are larger family groupings the Commissioner will accept $84 more for each additional adult and $42 for each additional child.

   

Tax Institute of Australia:
taxinstitute.com.au

The Board of Taxation: www.taxboard.gov.au

Business Entry Point www.business.gov.au

• $800 for accommodation based on hotel rates in the area
• $125 for food based on the Commissioner’s guidelines for expatriates
• $40 for the heat, the flies, the dust, the loneliness and sadness 

Taxable value is:

• Living-away-from-home allowance $977
• less exempt accommodation $800
• less exempt food (125 – 42) $83*
• Taxable value of allowance $94 

* i.e. the additional cost of food incurred by not living at home is exempt from fringe benefits tax. (Fringe benefits tax is payable on the $42 home cost of food). 

   

Summary 

To qualify for a LAFHA an employee will usually be required to live away from her/his usual place of residence for a period in excess of three weeks. 

Where the employee receives such an allowance for her/himself and where necessary their family, which does not exceed the amounts as set out in TD 1999/3 (for the 2000 FBT year) the amount of that allowance which represents the cost of food which the employee would have been expected to incur if he had not been living away from home would be the amount subject to FBT. 

Any additional reasonable allowance paid in respect of accommodation would be fully exempt from FBT provided a declaration is received from the employee confirming the usual place of residence of the employee and the fact that the employee is living away from that residence for the purpose of employment.

   

Reducing taxable values 

There are a number of ways in which the taxable value of a living away from home allowance fringe benefit may be reduced. These include: 

• ensuring that the living away from home allowance includes an accommodation and/or meal component;
• maximising the amount of the food allowance up to the limits prescribed by the ATO; and
• withholding from the employees gross meal allowance $42 per week in respect of home food costs. In some cases it might be possible to provide the employee with a travel allowance. Travel allowances are not subject to FBT and may be fully tax deductible in the hands of the recipient.