An employee who is living away from home as part of their work activities may be entitled to receive a living away from home allowance (LAFHA). This allowance, which is subject to fringe benefits tax, is not treated as income under the PAYG scheme.
The employee must not have relocated elsewhere or changed their usual place of residence. If they have, the allowance will be treated as income and withheld at source under the PAYG system.
Reasonable food and accommodation components may be included according to the existing tax provisions.
The exempt food component is the amount of the allowance paid to compensate an employee for additional food costs in the alternate location. The ATO does not lay down strict guidelines for the calculation of this amount but only reasonable and defensible amounts are generally allowed. For example:
- ABS guidelines;
- comparison of the average food expenses between the home location and alternate locations;
- ATO guidelines.
Other factors to consider
- The composition of the employee's family;
- the food costs in the alternate location;
- the average costs of food in the home location.
You are also allowed to deduct a reasonable expense for your accommodation in the alternate location. This is known as the exempt accommodation component. This amount is arrived at after considering your position in the company or entity and the size of your family, if they are accompanying you in the alternate location.
LAFHA Declaration
The recognition of the expenses as living away from home allowance is not automatic. In order to take advantage of the tax concessions you are must submit a LAFHA declaration each FBT year. Failure to submit this declaration will result in the entire allowance being taxed as fringe benefits.
Accountant Sydney has more information for mobile workers in Australia. There is also a basic guide to the Living Away From Home Allowance (LAFHA).
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