LIVING AWAY FROM HOME ALLOWANCE (“LAFHA”)  

Living Away from Home Allowance is a tax free allowance used under law in Australia to offset additional expenses and discomfort incurred whilst living away from home for a defined period.

This allowance is frequently used by temporary overseas skilled workers, working holiday makers and Australian citizens working interstate. Confusion abounds as to what can or cannot be claimed. 

The class of visa a worker is on should not be used as a determining factor for the eligibility of LAFHA, purely the intention of the worker to return to the vicinity of their primary residence. This intention should be reassessed every 12 months. 

Geoffrey Nathan Consulting were founder members of the ACPMA (Australian Contract Professional Management Association) who have worked with the ATO to develop a code of conduct and specific guidelines as to the administration of a LAFHA. All workers should ensure that any LAFHA benefits they receive are paid in accordance with these guidelines. 

Legal Basis for a LAFHA  

LAFHAs are dealt with by specific provisions in the tax law, namely, specific provisions in Division 7 of Part III of the Fringe Benefits Tax Assessment Act 1986 (“FBTAA”)  

General Nature of a LAFHA  

In broad terms, a LAFHA benefit arises where an employer pays an allowance to an employee as compensation for additional non-deductible expenses and other disadvantages caused by the fact that the employee (with or without family members) is required to live away from his or her usual place of residence in order to perform the duties of employment. A LAFHA benefit may be taxable or may be partly taxable or may be exempt from tax. The taxable value is based on the amount of the allowance less any exempt accommodation component and/or any exempt food component.  

Sub-section 30(1) of the FBTAA  

The relevant taxation provisions dealing with LAFHAs are found in Division 7 of Part III of the FBTAA, of which sub-section 30(1) of the FBTAA forms part.  Sub-section 30(1) (which forms part of Division 7 of Part 111 of the FBTAA) states:  

“Where –                

a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee;

and 2                

b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for –                

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or                

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject during a period,  by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment, the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.”  

Some important issues  

It is important to note that, amongst other conditions which need to be satisfied in order for a LAFHA to be available, the LAFHA must be wholly or partly to compensate the employee for additional non-deductible expenses incurred or compensation for other additional disadvantages to which the employee is subject, because of the requirement to live away from home. Those additional expenses must not be tax deductible to the employee. Examples include additional food costs, rent, telephone costs of keeping in touch with home, additional insurance on property kept away from home and laundry costs caused by lack of access to a home laundry.  

It is also important to note that there must be a separately identifiable amount representing an allowance. An unidentified amount simply included in the wages or salary of an employee or a payment of an amount to an employee as a reimbursement of expenses incurred by the employee, will not suffice.  

An allowance for additional disadvantages must be paid in conjunction with an allowance for additional expenses incurred due to living away from home, for it to fall within the fringe benefits tax (“FBT”) provisions; otherwise it will simply be included in the assessable income of the employee.  

Care must be taken not to confuse a LAFHA and a traveling allowance. A traveling allowance will be part of assessable income. 

Care must also be taken to ensure that it is beyond doubt that, for FBT purposes, the employee may be regarded as living away from his or her usual place of residence.  

This is defined by the ACPMA (Australian Contracting Professional Management Association) guidelines as agreed by the ATO. 

The relevant case law only involves decisions by the lowest court-like taxation review body, the previously existing Taxation Board of Review. There have been no definitive High Court decisions on the issue of what constitutes a usual place of residence. As a result, the law is uncertain in this regard. 

Certain industries or professions are excluded from the LAFHA legislation.