For taxpayers with a career that is taking them places, literally, there may be an allowance available that will make the change a little easier. If earning a living means an employee needs to be away from their usual place of residence for an extended period, the government has a special consideration called the living away from home allowance (LAFHA).
The LAFHA is a specific form of fringe benefit, and one on which employers are therefore expected to pay fringe benefits tax. The LAFHA is intended to compensate for the additional expenses incurred when an employee is required to live somewhere other than their usual home in order to carry out their employment duties (although the term “additional expenses” does not include expenses that they would be able to claim as tax deductions anyway). LAFHA is the only “allowance” that is written into the FBT regime, and so declarations are required to secure it.
The Tax Office considers that an employee is living “away from home” when they have a “usual place of residence” at which they would otherwise continue to live but for the fact that work commitments require them to temporarily live in a different locality. “Usual place of residence” is not defined in the legislation, and so takes on its ordinary meaning.
The allowance is available to Australians moving to locations within Australia, to overseas “temporary resident” long-stay visa holders, or Australians working overseas. One limitation for temporary residents, which was introduced from October 2012, is that they must “maintain a home in Australia” for their own use which they are living away from for work purposes (although fly-in fly-out or drive-in drive-out employees are exempt).
The requirement to “mantain a home in Australia” stipulates that the residence must be one that the taxpayer (or their spouse) has an “ownership interest” in, and that continues to be available for their use while living away from it. The interpretation of ownership interest means that, for example, adult children living in the family home who move away from that home for work are not entitled to LAFHA. And the stipulation that the residence must be “available for use” means a taxpayer cannot rent out the premises, for example, while they are away from it and still claim the allowance.
What is a ‘usual place of residence’?
While it may seem straightforward to determine if a worker is living at their usual place of residence or not, the current interpretations have been developed over years of case law decisions, and ultimately depend on the facts of each case (with added restrictions implemented from 2012).
Factors such as the lifestyle of the employee, residency status, type of profession, location of family members and the type of industry can often be part of Tax Office considerations, should they investigate claims. Other relevant details may include, for example, whether electoral enrolment has changed, or driver’s licence details, or whether the former residence is under a “house-sitting” arrangement or is being rented out while the employee is working at the other locality.
LAFHA concessions may not be available, for example, where it can be shown that an employee has a more transitory lifestyle, such as following shearing work from wool shed to wool shed, and so strictly does not have a “usual” place of residence. Also certain kinds of occupations bring with them locational transfers as part and parcel of the job, such as members of the defence forces, certain law enforcement officers or project managers.
But there are straightforward LAFH situations, such as where an employee is appointed for a specified time to a branch office in another state, and in some situations employees who are construction workers living in camps, barracks or huts, and oil or gas industry employees living on offshore rigs.
Reducing the taxable value
The taxable value of the LAFHA fringe benefit can be reduced by amounts allowed for consumables such as food and drink and also for accommodation expenses. The accommodation expenses must be substantiated, but “reasonable amounts” allowed for the food and drink components are issued as a ruling from the Tax Office. These amounts may be deemed exempt from being considered part of the fringe benefit. Substantiation is required for food and drink expenses over these limits.
Relatively recently however, the concession for food, drink and accommodation was limited to 12 months only. This now means that reducing the taxable value of LAFHA can only be done for a 12 month period for a particular location. So if an employee is engaged in work away from home for more than a year, the employer will be taxed on the full amount of the LAFHA fringe benefit.
The concession for food and drink allows an exempt amount that represents reasonable compensation for the increased cost of meals and so on that is likely to be incurred because the taxpayer is living away from their usual home. This increased cost is seen as the difference between the reasonable estimate of groceries while living away compared with what this would be should they have stayed home.
The weekly amounts deemed reasonable for food and drink, for example, for the current FBT year commencing April 1, 2014, have been set as per the table below:
|One adult and one child||295|
|Two adults and one child||413|
|Two adults and two children||472|
|Two adults and three children||531|
|Three adults and one child||531|
|Three adults and two children||590|
“Adults”, for the purpose of the amounts for food and drink, are persons who had attained the age of 12 years before the beginning of the FBT year. In relation to larger family groupings, the Tax Office accepts the reasonable food and drink amount $118 for each additional adult, and $59 for each additional child.
Note however that the 12 month period:
- can “pause” if the employee temporarily relocates to their usual place of residence
- can “rewind” to the start if the work location changes and it would be unreasonable for the employer to expect the employee to commute to the new location from the earlier location
- does not apply to fly-in fly-out or drive-in drive- out workers
- does not recommence (that is, it continues) if conditions of employment change (such as a promotion or changed role), or if the employee takes up employment with a connected entity.
It is important however to properly determine whether absence from the usual place of residence is to be considered a bone fide LAFH arrangement or a travelling allowance, because they have different tax treatments — the former is a fringe benefit but the latter is part and parcel of an employee’s assessable income.
The Tax Office offers the following comparisons to help determine the difference:
|Living-away-from-home allowances||Travelling allowances|
|This is paid where an employee has taken up temporary residence away from their usual place of residence in order to carry out duties at a new, but temporary, workplace.||This is paid because an employee is travelling in the course of performing their job.|
|There is a change of job location in relation to paying the allowance.||There is no change of job location in relation to paying the allowance.|
|Where an employee is living away from home, it is more common for that employee to be accompanied by their spouse and family.||Where an employee is travelling, they
are generally not accompanied by their spouse and family.
|They are paid for longer periods (more than 21 days).||They are paid for short periods.|
The Tax Office however emphasises that these indicators are guidelines only, and no single indicator should be relied upon. For example, a travelling allowance might be paid to a commercial traveller, or travelling entertainer almost continuously, but another employee may receive a LAFHA for only a month or so.
There may be circumstances when an employee is away from their home base for a brief period in which it may be difficult to determine whether the employee is living away from home or travelling. The Tax Office says that as a practical general rule, where the period away does not exceed 21 days, the allowance will be treated as a travelling allowance rather than a LAFHA. It publishes specific rates on travel allowances.
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