Effective allowance management for greater take-home pay
Living Away From Home Allowance (LAFHA) is an allowance that must be in the nature of compensation to the employee for additional expenses incurred as a consequence of an employee being required to live away from their principle place of residence in order to perform the duties of that employment. The ATO defines the payment of a living away from home allowance (LAFHA) is a living away from home allowance fringe benefit.
For FBT purposes, a LAFHA is:
- an allowance you (the employer) pay to an employee, and
- to compensate for additional expenses incurred and any disadvantages suffered,
because the employee is required to live away from their usual place of residence in order to perform their employment-related duties. The term 'additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction.
Who can claim LAFHA?
- Australian residents moving locations within Australia
- Overseas long stay visa holders
- Australians working overseas.
There are two parts to LAFHA:
Exempt accommodation component
The exempt accommodation component of a LAFHA is that portion of the allowance that is compensation for additional expenses on accommodation, that the employee could reasonably be expected to incur at the alternate location.
Where the allowance paid includes an amount for accommodation which is not reasonable, that part of the allowance will be included in the taxable value of the LAFHA.
Exempt Food component
The exempt food component of a LAFHA is the amount of the allowance paid to compensate the employee for additional food costs because the employee is required to live away from their usual place of residence.
To calculate the exempt food component, you must first calculate the food component of the LAFHA. The food component is the amount of the LAFHA that is compensation for expenses the employee could reasonably be expected to incur on food and drink.
Where the allowance paid includes an amount for food which is not reasonable, that part of the allowance will be included in the taxable value of the LAFHA.
MedicoHR has significant experience managing LAFHA on behalf of our associates. It is crucial that you work with knowledgeable professionals when considering using LAFHA. Should you or your employer get the implementation or calculations wrong, any overpayment will have to be paid back to the ATO by the contractor/employee in all cases, without exception. It may be a big shock if processed incorrectly and you end up receiving a huge tax bill with payment required within 30 days to the ATO.
Contact your MedicoHR representative today to discuss if you are eligible and the potential benefits to you.
