A Living Away From Home allowance is paid by employers when they require an employee to work in an area that is different to their normal workplace and the employer pays the costs to the employee for living away from home.
For example, I work and live in Melbourne and after a few months the company requires me to go to Regional NSW for a few months to do some work there. They pay me an allowance for the costs of living in regional NSW because they have requested me to work there for a time.
This is not taxable income, so I do not need to declare it in a tax return. It is an allowance paid by an employer to an employee and is not subject to tax by the employee, provided it is paid in accordance with the tax office guidelines. No expenses can be claimed against this allowance.
From 1 October 2012, the LAFHA continued to be taxed to the employer under the Fringe Benefits Tax system. However, the employer is able to reduce the Fringe Benefits Tax payable on the amount paid to the employee, for a maximum period of 12 months, provided the employee meets the following conditions:
- maintains a home in Australia for their own personal use and enjoyment at all times whilst required to live away from home for their work; and
- provides a declaration relating to living away from home.
If these rules are satisfied, the employer is able to reduce the taxable value of the LAFHA by:
- the amount of the employee's actual substantiated accommodation expenditure while living away from home; and
- the amounts incurred by the employee for food or drink costs while living away from home, less a statutory amount if applicable.