Is a living away from home allowance taxable in Australia?
Yes, a Living Away From Home Allowance (LAFHA) is generally taxable income in Australia. However, specific components can be exempt from income tax and Fringe Benefits Tax (FBT) if strict conditions, such as substantiation and meeting the 'living away' definition, are met by the employer.
Was this helpful?
10 readers found this helpful
10 readers found this helpful
How it works in practice
Understanding Living Away From Home Allowance (LAFHA)
A Living Away From Home Allowance (LAFHA) is paid to employees who are required to temporarily live away from their usual home to perform their employment duties. It is designed to compensate for the additional expenses and non-deductible costs incurred due to working away from home, rather than being a top-up to their normal salary.
Taxability of LAFHA
For employees, the entire LAFHA amount received is assessable as ordinary income and must be included in their income tax return. However, if the allowance meets certain conditions, the employer may be able to claim a Fringe Benefits Tax (FBT) exemption for parts of it. This employer FBT treatment indirectly benefits the employee as the allowance is specifically structured to offset costs.
Components of LAFHA
LAFHA typically has two components: a food component and an accommodation component. For these components to be exempt from FBT, strict substantiation rules apply. The employee must generally spend the allowance on eligible expenses, and the employer must ensure the allowance is reasonable.
Important exceptions
The FBT exemption for LAFHA components only applies if several strict conditions are met. The employee must be 'living away from home' (not merely temporarily absent or travelling), meaning their employment requires them to reside elsewhere for a period, and their original home remains available and ready for them to return to. They must also have a reasonable expectation of returning to their usual residence. The accommodation and food components must be substantiated (receipts kept) and be for reasonable amounts.
If the conditions are not met, the entire allowance is subject to FBT for the employer, and for the employee, it remains assessable income without the indirect tax benefit. There are also time limits on how long an employee can claim LAFHA as exempt from FBT for a particular work location, usually 12 months.
What you should do now
-
Understand Your Situation: Determine if you are genuinely 'living away from home' due to work requirements, maintaining your original residence.
-
Keep Meticulous Records: Retain all receipts and documentation for accommodation, food, and other eligible expenses covered by your LAFHA.
-
Review Employer's Policy: Familiarise yourself with your employer's LAFHA policy and ensure it aligns with ATO requirements for FBT exemptions.
-
Declare Full Allowance: Always declare the full amount of LAFHA received as income in your personal income tax return.
-
Seek Professional Advice: Consult a tax professional or the ATO if you are unsure about the tax implications of your specific LAFHA arrangement.
Expert Notes
No expert notes have been added to this question yet.
People also asked
Explore highly relevant questions and get instant verified short answers.