When performing employment duties you may also be entitled to an allowance for living away from home (LAFHA), in addition to the wage you can receive as an employee, which is used to compensate for the additional expenses and any disadvantage that you may suffer while assigned elsewhere.
Employees who have changed their usual place of residence as part of their employment may qualify for a relocation allowance which must be distinguished from the LAFHA. The relocation allowance is taxed under the Pay As You Go (PAYG) scheme and the tax due is withheld at the source of payment while the LAFHA is subject to Fringe Benefits Tax (FBT).
Computing the taxable value of the allowance
The taxable value of the LAFHA is computed by deducting the value of the exempt food and accommodation components.
Exempt food component: this is the amount of the allowance paid to compensate the employee for additional food costs in the alternate location. The amount must be reasonable and defensible because there are no strict guidelines for the computation of this component.
You can arrive at an estimate of the food costs using either:
- The indexes and guidelines of the Australian Bureau of Statistics; or
- actual food expenses recorded in a specified period and by computing the difference between the average food expenditure in the home location and the average food expense in the alternate location; or
- ATO Guidelines.
Other factors that must be considered to arrive at a reasonable allowance for the food component are:
- The composition of the employee’s family a the start of the FBT year;
- the costs of food in the alternate location;
- the usual food expenditure in the home location.
The value of the allowance that represents the reasonable accommodation costs in the alternative locale is called the exempt accommodation component. The position of the employee in the business structure and the size of the family who is accompanying the employee, must be evaluated and be reasonable and defensible as, just like the food component, there is no strict rule or guideline for determining this value.
To take advantage of the concessions, the ATO requires you to provide a living away from home allowance declaration each FBT year. You will not be allowed reduce the amount of your tax by deducting exempt food and accommodation components and the entire LAFHA payment will be subject to tax without this declaration.
For advice relating to your specific situation please talk to your accountant.