Tax Implications of Living Away From Home Allowances
A Living Away From Home Allowance (LAFHA) can take several forms:
- The payment of an allowance to you by your employer
- The reimbursement of expenses which you incur by your employer
- The direct provision of a benefit by your employer. For example, the provision of living accommodation for you whilst you are away
A Living Away From Home Allowance is intended to compensate you for expenses incurred whilst you are working away on secondment or on a contract. These expenses include such costs as accommodation and meals. LAFHAs can also be payments to compensate you for other disadvantages such as isolation.
LAFHA's are payable in situations where you would have continued to live in your usual home if not for the requirement to change residence in order to work temporarily in another location at your employers request. There is an expectation that you will return to your usual home at the end of the period of working away.
Tax treatment of LAFHA
A LAFHA paid to you is income tax-free and should not be included as assessable income in your tax return. Conversely, you cannot claim a deduction for expenses which have been covered by a LAFHA.
However, your employer may be required to pay Fringe Benefits Tax on the value of the allowance or benefits provided.
LAFHA's are often confused with travel allowances.Travel allowances are paid to employees who are travelling on business but not living away from home. These are taxable and you can claim deductions against them. Generally, an employee travelling for business for less than 21 days will receive a travel allowance, not a LAFHA.
You can receive LAFHA or a benefit for family members who also live away with you, including your spouse and your children.
If you maintain a home in Australia that your duties of employment require you to live away from, your employer can only receive the concessional treatment for any living-away-from-home benefits they provide to you for 12 months. After that period, your employer will have to pay FBT on any benefits they provide to you.
Keeping Records of Expenses
You must keep records of your expenses and will need to give your employer either:
- documentary evidence of the expense such as receipts, credit card or bank statements (copies are acceptable)
- a declaration setting out information about the expense.
If you choose to provide a declaration to your employer, you must do so by the date on which your employer's FBT return is due to be lodged with the ATO or, if they don't have to lodge a return, by 21 May. You must also keep your documents to substantiate the expenses incurred for a period of five years from the declaration date. However, you do not need to keep the documents if you provide documentary evidence of the expense to your employer.
Food or drink expenses
Any food or drink expenses you incur while living away from home only need to be substantiated where the expenses exceed an amount considered to be reasonable by the Commissioner.
If your food or drink expenses exceed the reasonable amount, you must be able to substantiate the full amount of these expenses, not just the excess amount.
The full amount of accommodation expenses you incur must be substantiated.
If you're uncertain about whether allowances you are receiving are Living Away From Home Allowances or not, or if you need guidance on the records you need to keep, visit one of our offices and get advice from one of our expert tax consultants. Call 13 23 25 or find you nearest office.
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