Contents
- What is a living away from home allowance?
- Living away from home allowance versus travel allowance
- Eligibility for a living away from home allowance
- Steps for administering LAFHA payments to employees
- How to calculate the taxable value of a LAFHA fringe benefit?
- Maintaining a home in australia for LAFHA eligibility
- The first 12 months living away from home
- Fly-in fly-out and drive-in drive-out employees
- Employee declaration requirements
- Other living away from home fringe benefits
- Providing food benefits for employees living away from home
What is a living away from home allowance?
A Living Away From Home Allowance (LAFHA) is a type of allowance given to an employee, and it qualifies as a LAFHA fringe benefit when two specific conditions are met:
- The nature of the employee’s job requires them to live away from their usual place of residence.
- Some or all of the allowance is provided to compensate the employee for expenses that cannot be deducted as business expenses, as well as other disadvantages they may face due to living away from their normal residence.
Living away from home allowance versus travel allowance
LAFHAAencompIt’s essential to differentiate between a LAHFA and a travel allowance because they are subject to different tax treatments.
LAFHAs are considered fringe benefits, whereas travel allowances are part of an employee’s assessable income and do not fall under the category of fringe benefits.
This article focuses on LAFHA. In a separate article we discuss travel allowances and travel tax deductions.
Here are key indicators that help distinguish between the two:
Living Away From Home Allowances
- Paid when an employee temporarily resides away from their usual place of residence to perform duties at a new, but temporary, workplace.
- Involves a change in job location related to the allowance.
- Typically associated with employees who are accompanied by their spouse and family when living away from home.
- Paid for extended periods.
Travel Allowances
- Paid when an employee is traveling as part of their job.
- There is no change in job location in relation to the allowance.
- Usually provided to employees who do not travel with their spouse and family.
- Paid for shorter durations.
These indicators serve as guidelines, and the nature of the allowance isn’t determined by a single factor.
For instance, a travel allowance can be paid to someone who travels continuously for work, like a commercial traveler or entertainer, while another employee may receive a LAFHA for a relatively short period, such as a month.
In some situations, it may be challenging to determine whether an employee is living away from home or simply traveling, especially for brief periods.
As a practical rule of thumb, if the employee’s time away from their home base does not exceed 21 days, the allowance is typically treated as a travel allowance rather than a LAFHA.
The guidelines around LAFHAs are detailed in the FBT Act.
Normal residence for LAFHA fringe benefits
The concept of ‘normal residence’ is quite broad and is used to determine the applicability of a LAFHA fringe benefit, regardless of an employee’s primary place of residence. Whether the employee resides within or outside Australia, it is their ‘normal residence’ that plays a crucial role in deciding if a LAFHA fringe benefit applies.
Here are various scenarios regarding an employee’s place of residence:
- Usual Residence in Australia: If an employee’s usual place of residence is within Australia, then their ‘normal residence’ is that specific location in Australia where they usually reside.
- Non-Australian Residence with a Place in Australia: In cases where the employee primarily resides outside Australia but maintains a place of residence within Australia while living in the country, their ‘normal residence’ is considered to be the location in Australia where they usually reside during their stay.
- Non-Australian Residence without a Place in Australia: If the employee does not have a place of residence in Australia while living in the country, their ‘usual place of residence’ remains overseas.
Thus, ‘normal residence’ takes into account various scenarios to determine whether a LAFHA fringe benefit is applicable.
Usual place of residence in LAFHA
The ‘usual place of residence’ for an employee is the location where they normally live or have some type of sleeping accommodation, regardless of whether this arrangement is permanent, temporary, or shared with others.
However, determining whether an employee is considered to be living away from their usual place of residence involves considering two key places of residence:
- The Current Residence: This refers to the place where the employee is currently living, whether it’s a temporary or permanent arrangement.
- The Usual Place of Residence: This is the place where the employee would typically reside if their job duties didn’t require them to temporarily work in a different location.
An employee is considered to be living away from their usual place of residence when it can be reasonably assumed that they would have continued to live at their former location if their job duties didn’t necessitate temporary work in a different area.
In other words, it’s a situation where work obligations have caused them to temporarily relocate from their regular place of residence.
Eligibility for a living away from home allowance
The criteria for determining whether an employee qualifies for a LAFHA are well-established and have evolved through legal cases over time.
The eligibility hinges on the specific circumstances of each case, and similar principles can be applied to ascertain whether an employee is living away from their usual place of residence or normal residence.
Factors influencing LAFHA eligibility
- Employee’s Lifestyle and Occupation: Consideration of the employee’s lifestyle and the nature of their profession and industry is crucial.
- Personal Details: Changes in personal details such as driver’s license or electoral enrollment can be relevant.
- Management of Former Residence: Whether the employee’s previous residence was looked after by friends or relatives during their absence or rented out during their stay elsewhere can impact eligibility and the taxable value of the LAFHA fringe benefit.
- Transitory Lifestyle: Some employees have a transient lifestyle, moving from one location to another for work, making their normal residence wherever they stay overnight. This may exclude them from LAFHA eligibility, for instance, employees working on various construction sites with no permanent address.
Examples of LAFHA eligible employees
Foreign Nationals and Australian Residents Abroad
Foreign nationals employed in Australia (expatriate employees) and Australian residents stationed abroad temporarily, such as export consultants, diplomats, and immigration officials, are typically considered to be living away from their usual places of residence.
Employee Transfers Within Australia
Employees who temporarily transfer to a different location within Australia for a defined period, with the intention of returning to their permanent position after the term ends, are also regarded as living away from their normal residence.
For instance, an employee relocating to a branch office in another state for a two- or three-year term.
In most cases, it is presumed that a person’s normal residence is in proximity to their permanent place of employment.
Specific scenarios
- Construction Workers: Those residing in camps, barracks, or temporary huts at remote job sites.
- Oil Industry Workers: Employees living on offshore oil rigs as part of their job.
- Marine Industry Personnel: Employees residing onboard vessels as part of their employment.
- Trainee Employees on Extended Training: Trainee employees, such as trainee teachers, who must live away from home for lengthy training programs. Short-term staff training courses are typically treated as regular employment travel.
- Employees on Offshore Petroleum or Gas Installations: These employees are usually provided with accommodation near their worksite.
If an allowance is provided to compensate them for living away from their usual place of residence and is expressly stated as a LAFHA for Fringe Benefits Tax (FBT) purposes, it qualifies as such, and employees are not required to have a usual place of residence in Australia.
Steps for administering LAFHA payments to employees
If you intend to provide a LAFHA to an employee, it’s important to follow these steps:
Step 1: Determine LAFHA Eligibility
Ensure that the amount you’re paying to the employee indeed qualifies as a LAFHA according to the defined criteria.
Step 2: Calculate Taxable Value of LAFHA Fringe Benefit
The calculation of the taxable value of the LAFHA fringe benefit can vary based on several factors:
- If the employee is a temporary or foreign resident and transitional rules apply.
- If the employee is not a temporary or foreign resident and transitional rules apply.
- If the employee maintains a home in Australia where they usually reside, and the fringe benefit pertains to the first 12-month period, without the application of transitional rules.
- If the employee works on a fly-in, fly-out, or drive-in, drive-out basis.
- If any other unique circumstances apply.
Step 3: Maintain Appropriate Records and Declarations
It’s essential to keep the necessary records and declarations in accordance with section 11.10 and Chapter 4 of the guidelines.
Step 4: Reporting (If Required)
If necessary, report the LAFHA amount as a reportable fringe benefit on the employee’s payment summary or income statement, rather than as a taxable allowance.
These steps provide a systematic approach to ensure compliance with LAFHA regulations and accurately determine the taxable value of the fringe benefit for employees.
How to calculate the taxable value of a LAFHA fringe benefit?
Three scenarios for calculating taxable value
Scenario 1: Employee Maintains a Home in Australia and Fringe Benefit Relates to the First 12-Month Period
In this case, if the employee maintains a home in Australia where they usually reside and the LAFHA relates to their first 12 months at a specific work location, the taxable value is calculated by subtracting any exempt accommodation and food components from the total LAFHA amount.
Scenario 2: Employee Works on a Fly-In, Fly-Out, or Drive-In, Drive-Out Basis
When an employee has residential accommodation at or near their usual place of employment and provides the necessary declaration about living away from home, the taxable value is calculated similarly, subtracting exempt accommodation and food components.
Scenario 3: All Other Cases: For situations that do not fit into the above two scenarios, the taxable value is simply equal to the total amount of the fringe benefit.
It is important to note that any food or drink allowance provided during days when the employee returns home is fully taxable for FBT purposes.
What is exempt accommodation component?
The “exempt accommodation component” is a critical aspect of LAFHA. It refers to the portion of the accommodation component that directly corresponds to the actual accommodation expenses incurred by the employee.
In other words, it represents the part of the LAFHA that aligns with what the employee spends on their accommodation.
Family Member Involvement
In cases where a family member takes care of these accommodation expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee.
Consequently, the employee is still deemed the individual incurring these accommodation costs.
Documentation and Substantiation
To qualify for the exemption, the employee must provide comprehensive documentation and proof of all accommodation expenses. This substantiation is crucial to validate the exempt status of the accommodation component.
Unused LAFHA Allocation
If the employee does not utilize the entire LAFHA allocated for the accommodation component and there is an excess amount remaining, this surplus is not categorized as an exempt accommodation component. Instead, it becomes subject to taxation.
What is exempt food component in LAFHA
The “food component” of the LAFHA is intended to cover expenses related to food and drink for employees and eligible family members when they are living away from their usual place of residence.
This component aims to provide compensation for these essential costs during the period of living away from home.
Calculation of Exempt Food Component
To calculate the exempt food componenet, first establish it and then follow these steps:
Step 1: Subtract the applicable statutory food total from the food component using this formula:
Food Component – Applicable Statutory Food Total
Step 2: Determine Employee Incurred Expenses
From the result obtained in Step 2, ascertain how much of that amount was actually incurred by the employee for food and drink expenses.
Step 3: Substantiate the Exempt Food Component
The exempt food component is the portion of the amount determined in Step 3 that can be substantiated if required. Proper documentation and proof may be necessary to validate this exemption.
Involvement of Family Members
When a family member incurs these food and drink expenses on behalf of the employee, that family member is regarded as acting as an agent of the employee. Therefore, the employee is still considered the individual incurring these expenses for tax purposes.
Exemption Limitation
The exempt food component does not include expenses for food or drink on days when the employee resumes living at their normal residence.
In other words, if you provide an allowance for food or drink for days when the employee returns home, that portion of the allowance is fully taxable.
What is applicable statutory food total
The applicable statutory food total is calculated by summing the statutory food amounts for the employee and any eligible family members, and then subtracting any amount that could reasonably be expected to cover the total normal food or drink expenses for eligible family members if they had remained in their usual residence during the specified period. The statutory food amount is $42 a week for each adult and $21 a week for each child.
This calculation method allows for two practices:
- Providing an allowance net of the statutory food amount to compensate employees solely for additional food or drink expenses.
- Providing an allowance that includes the statutory food amount to cover the total food or drink expenses incurred during the period.
An important point to remember is that the applicable statutory food total cannot be calculated below zero.
Maintaining a home in australia for LAFHA eligibility
To be eligible for a LAFHA as an employee, he must meet specific criteria regarding the maintenance of a home in Australia. Here are the key points to understand:
Definition of a home in australia
An employee’s “home in Australia” refers to the place within Australia where they typically reside. This definition encompasses a wide range of accommodations, including houses, flats, home units, caravans, or any other living quarters.
To be considered as maintaining a home in Australia, the following conditions must all be met:
1. Ownership Interest: The employee or their spouse must have a legal or equitable ownership interest in the home. This includes ownership rights, a license, or the right to occupy the dwelling. The ownership interest can pertain to a home they own or rent.
2. Immediate Use and Enjoyment: The home must be available for the immediate use and enjoyment of the employee at all times while they are living away from it. This means that the entire home cannot be rented out or sublet while the employee is away.
3. Intention to Resume Living at Home: It should be reasonable to expect that the employee intends to return to and live at that home when they are no longer required to live away from home for employment reasons.
Ownership Interest Clarification
Ownership interest covers not only legal or equitable ownership but also includes licenses or rights to occupy a dwelling.
In other words, an employee or their spouse can have an ownership interest in a home they either own or rent.
Exception for adult children living with parents
In the case of adult children living with their parents, they generally do not have an ownership interest in the home. This is because they typically aren’t responsible for mortgage or rental payments.
Even if they pay board to their parents, this does not alter the fact that they are not considered to be maintaining a home because it is seen as a domestic arrangement.
Ongoing costs and immediate occupancy
To maintain a home for immediate use and enjoyment, the employee must bear the ongoing costs associated with the residence, such as mortgage or rental payments and rates.
Additionally, they must have the ability to return to the home at any time and occupy it immediately.
These criteria are essential to determine whether an employee qualifies for tax benefits related to maintaining a home in Australia while temporarily living away from it for work purposes.
Boarders, tenants, and house-sitters in relation to home maintenance
Boarders or Tenants
If an employee has boarders or tenants staying in their usual residence, they can still be regarded as maintaining the home for their own use and enjoyment.
However, this is contingent on the boarder’s or tenant’s stay not impinging on the availability of the residence for the employee’s immediate use and enjoyment. In other words, the employee should retain the right to use and enjoy their home when they return.
House-Sitters
When an employee has a house-sitter in their home during the period when they are living away from it, they are considered to be maintaining the home if the house-sitter meets certain conditions:
- The house-sitter must be required to vacate the residence when necessary, ensuring the home is available for the employee’s use.
- Alternatively, the house-sitter’s stay should not restrict the employee’s use and enjoyment of the property when the employee returns home, even if temporary visits are involved.
Rental or Sublet Arrangements
If an employee decides to rent or sublet a portion of their home while they are living away from it (for example, renting a bedroom or a granny flat), they will still be considered as maintaining the home for their own use and enjoyment under specific conditions:
- The employee must continue to have occupancy rights in their home.
- The rental or sublet arrangement should not impose restrictions on the employee’s use and enjoyment of the property when they return home.
Thus, the presence of boarders, tenants, or house-sitters, as well as rental or sublet arrangements, doesn’t automatically disqualify an employee from being considered as maintaining their home for their own use and enjoyment.
Certain conditions must be met to ensure that the home remains available and accessible when needed.
The first 12 months living away from home
The first 12 months during which an employee is required to live away from their home for work purposes in Australia determine the eligibility for fringe benefits related to living away from home.
It’s important to note that these 12 months don’t have to be continuous. There is flexibility in managing this 12-month period.
For instance, you can pause the period, especially if the employee is on leave, such as annual leave, long service leave, or sick leave. Pausing allows you to adapt to changing circumstances as needed.
Here’s how the 12-month period is affected in different employment situations:
Pausing the 12-Month Period
If you decide to temporarily stop the 12-month period while continuing to provide a Living Away From Home Allowance to the employee, it’s important to note that no reduction in the taxable value of the fringe benefit occurs during this paused period. The entire fringe benefit continues to be subject to taxation during this time.
Change in Work Location
If the employee’s work location changes to a new place where it’s unreasonable to expect them to commute from their earlier location for which a LAFHA was provided, a new 12-month period begins at the new employment location.
The balance of the original 12-month period is available if the employee returns to the previous employment location.
Employment With an Associate
When an employee takes up employment with an associate of their current employer and works in the same employment location, the 12-month period remains unaffected.
It accumulates under both employers, and there is no initiation of a new 12-month period under the associated employer.
Changes in the Nature of Employment
If there are changes in the nature of the employee’s employment within the same work location, such as changes to employment conditions (like a promotion or change in job title), the 12-month period remains unchanged.
Employment With a Different Employer
If the employee takes up employment with a different employer who is not an associate of their previous employer, a new 12-month period begins when the employee changes employers.
Hence, the first 12 months of living away from home for employment purposes are essential for determining fringe benefits.
Fly-in fly-out and drive-in drive-out employees
An employee is classified as working on a fly-in fly-out or drive-in drive-out (or equivalent) basis when specific conditions are met:
Regular and Rotational Schedule: The employee follows a regular and rotational work schedule, which involves working for a certain number of days and having a specified number of days off.
Importantly, these days off are not on the same days in consecutive weeks, similar to a standard five-day working week and weekend pattern.
Returning to Normal Residence: During their days off, the employee returns to their normal residence.
Industry Custom: It is customary in the industry in which the employee works for individuals performing similar duties to work on a rotational basis and return home during their days off.
For example, this is often seen in professions like mining, where work duties are carried out by different employees on a rotational schedule while others are on their days off.
Unreasonable Daily Travel: Given the locations of both the employee’s workplace and their home, it is unreasonable to expect the employee to commute to and from work and their normal residence on a daily basis.
Intent to Return Home: It is reasonable to expect that the employee plans to resume living at their normal residence when their employment duties no longer necessitate them to live away from home.
Employee declaration requirements
To be eligible for the concessional treatment for LAFHAs and related benefits, employees must provide specific declarations tailored to their individual situations. These declarations must adhere to the approved format and may vary depending on the circumstances of the employee.
Here’s a breakdown of the different declarations and when they are applicable:
Fly-in Fly-out or Drive-in Drive-out Basis
Employees who have received a LAFHA or benefit and work on a fly-in fly-out or drive-in drive-out basis should submit a “Living-away-from-home declaration – employees who fly-in fly-out or drive-in drive-out.”
However, this declaration should not be used if they have received both accommodation and transport benefits to and from their usual residence.
Maintaining an Australian Home
Employees who have received a LAFHA or benefit, need to maintain a home in Australia where they usually reside, and the fringe benefit relates to the initial 12-month period should submit a “Living-away-from-home declaration – employees who maintain an Australian home.”
This declaration is not for fly-in fly-out or drive-in drive-out employees or those who qualify for transitional rules.
Providing Declaration about Accommodation and Food/Drink Expenses
Employees who received a LAFHA and choose to provide their employer with a declaration regarding their accommodation and food or drink expenses should use the “Living-away-from-home declaration – employee-related expenses.”
However, this declaration is not necessary if they have already provided documentary evidence of their accommodation and food or drink expenses. The food or drink section of this declaration doesn’t need to be completed if the expenses incurred are within the ATO’s reasonable amount.
It’s important to note that employees should also provide a declaration about living away from home.
Employers are required to collect all employee declarations no later than the day when the company’s Fringe Benefits Tax (FBT) return is due to be submitted.
If the employer is not obligated to file an FBT return, the declarations should be obtained by 21 May.
Fly-in fly-out or drive-in drive-out basis
Employees who have received a LAFHA or benefit and work on a fly-in fly-out or drive-in drive-out basis should submit a “Living-away-from-home declaration – employees who fly-in fly-out or drive-in drive-out.”
However, this declaration should not be used if they have received both accommodation and transport benefits to and from their usual residence.
Maintaining an australian home
Employees who have received a LAFHA or benefit, need to maintain a home in Australia where they usually reside, and the fringe benefit relates to the initial 12-month period should submit a “Living-away-from-home declaration – employees who maintain an Australian home.”
This declaration is not for fly-in fly-out or drive-in drive-out employees or those who qualify for transitional rules.
Providing declaration about accommodation and food/drink expenses
Employees who received a LAFHA and choose to provide their employer with a declaration regarding their accommodation and food or drink expenses should use the “Living-away-from-home declaration – employee-related expenses.”
However, this declaration is not necessary if they have already provided documentary evidence of their accommodation and food or drink expenses. The food or drink section of this declaration doesn’t need to be completed if the expenses incurred are within the Commissioner’s reasonable amount.
It’s important to note that employees should also provide a declaration about living away from home.
Employers are required to collect all employee declarations no later than the day when the company’s Fringe Benefits Tax (FBT) return is due to be submitted.
If the employer is not obligated to file an FBT return, the declarations should be obtained by 21 May.
Timeframes for record keeping and receiving records
The timeframe for keeping and receiving records related to Living Away From Home Allowances and related declarations is as follows:
Employee Declarations about Living Away From Home: If an employee provides a declaration regarding living away from home, the employer must retain this declaration for a period of five years from the date the employee is required to provide the declaration.
Employee Declarations about Accommodation, Food, or Drink Expenses: Similarly, if an employee gives a declaration concerning their accommodation, food, or drink expenses (or a combination of these), the employer must maintain this declaration for five years from the date it should be submitted by the employee.
Employee Documentary Evidence of Expenses: In cases where an employee provides documentary evidence of their expenses, such as receipts, copies of credit card statements, or bank statements, instead of a declaration, the employer is required to keep these documents for a duration of five years from the date the employee would typically be obliged to provide the declaration.
It is crucial for employees to retain relevant documentary evidence of their expenses for the same five-year period from the date they are required to furnish the declaration.
These timeframes ensure compliance with record-keeping requirements associated with LAFHA and related employee declarations.
Other living away from home fringe benefits
Instead of providing a cash Living Away From Home Allowance when an employee is required to reside away from their usual home, employers may choose to offer accommodation and/or food directly to the employee.
Alternatively, they may reimburse the employee for these expenses.
In such cases, while these benefits need to be valued following specific valuation rules for each type of benefit, the tax liability remains essentially the same. There are potential reductions and exemptions that can apply in these scenarios, which include:
Living Away From Home – Food Provided: This refers to the provision of food to the employee while they are living away from their usual home.
Living Away From Home – Accommodation: This pertains to the provision of accommodation for the employee while they are living away from their usual home.
Thus, employers have the option to provide accommodation and food directly to employees when they are required to live away from their usual residence.
While these benefits must be valued according to specific rules, the tax implications are generally similar to those of cash LAFHA benefits, with potential reductions and exemptions available.
Providing food benefits for employees living away from home
Instead of offering a cash Living Away From Home Allowance to employees who are required to live away from their usual residence due to work duties, employers have the option to provide food benefits.
These food benefits can give rise to either an expense payment fringe benefit or a property fringe benefit.
Employers can reduce the taxable value of these fringe benefits to the equivalent of $42 per week for each adult and $21 per week for each child.
Here, an adult is defined as a person who has reached the age of 12 years before the start of the Fringe Benefits Tax (FBT) year. This reduction applies before applying any employee contributions.
To apply this reduction, certain requirements must be met:
For Employees on Fly-In Fly-Out or Drive-In Drive-Out Basis
The employee must have residential accommodation at or near their usual place of employment.
The employee must provide the appropriate declaration about living away from home.
For Employees Not on Fly-In Fly-Out or Drive-In Drive-Out Basis
The employee must maintain a home in Australia at which they usually reside, and it should be available for their use and enjoyment at all times.
The fringe benefit must relate to the first 12-month period at a specific work location.
The employee must provide the appropriate declaration about living away from home.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.