Living Away From Home Allowance (LAFHA)
Living Away From Home Allowance (LAFHA)
Please note for those requiring general LAFHA information that is not related to engagement through PayMe Australia, we are not a free advice service. Please contact the Australian Taxation Office (ATO), your payroll officer, or your accountant.
This allowance reduces your taxable income to compensate you for working on a short term basis away from your normal place of residence. It is reviewed once a year, and does not normally extend to more than two (2) years.
LAFHA as defined by the ATO 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."
Note the use of the words "ADDITIONAL EXPENSE" and "PRINCIPLE PLACE OF RESIDENCE".
These are clear indications of the nature and intention of LAFHA being an allowance for inconveniencing an employee.
Who is eligible?
Firstly you must be considered an employee, and under the ATO's Fringe Benefit Tax (FBT) Guide for Employers, an employee is:
- A current employee,
- A future employee, or
- A former employee.
So this qualifying criterion is relatively simple.
Secondly you must be considered to be living away from your usual place of residence when:
- There is a change of job location (and the family may follow);
- The employee intends to return to their original location after time away; and
- The period away exceeds 21 days (ATO ‘rule of thumb’).
- Lastly, you must be assessed by PayMe as complying with LAFHA legislation. We provide all contractors requesting LAFHA with a LAFHA Questionnaire so you can be assessed before you may be paid the allowance.
What can be paid?
LAFHA is paid in two components, the Food Component and the Accommodation Component.
The Food Component
The food component will lower your taxable salary by the maximum reasonable claimable levels that are set by the ATO.
The amount the ATO assumes to be normally spent (the “statutory food amounts”) on food is set at $42 per week per adult and $21 per week per child* at the start of the FBT year.
| The Food Component | 1 Adult | 2 Adults | 2 Adults and 1 Child |
2 Adults and 2 Children |
|---|---|---|---|---|
| ATO weekly reasonable food component for LAFHA |
$221 | $354 | $397 | $397 |
| ATO statutory food amount that cannot be claimed |
$42 | $84 | $105 | $126 |
| Amount that can be deducted from your weekly taxable income |
$179 | $270 | $292 | $271 |
* A child is considered to be under 12 years old at the beginning of the FBT year.
See ATO Tax Determination TD 2009/6 for the reasonable food component reference.
The Accommodation Component
The Accommodation Component must pass the ATO test so that it is considered to be "reasonable" for you, e.g. a one bedroom apartment for a single person, multiple rooms for a family, not a penthouse, but also not a hovel. In fact it simply boils down to "common sense" and ensuring that you never give the ATO cause to investigate you. We can assist you in identifying what is "reasonable".
An example
Peter is a contractor earning $90 per hour. If Peter's usual place of residence is in Melbourne, and he is contracted to a client in Canberra for 12 months and intends to return to his home in Melbourne after this 12 months, he could consider LAFHA. If he then temporarily moved to Canberra, and was accompanied by his wife and two children, he would be able to reduce his taxable income for the food component by $271 which is approximately $120 additional cash in hand as compensation. If his weekly rent was $350 in Canberra, Peter could reduce his taxable income by $271 (food component) and $350 (accommodation component) totalling $621 per week. This would provide Peter approximately $250 additional cash in hand as compensation.
When are you not eligible?
It is also worth noting at this stage that once an employee or a contractor starts to make their own decisions regarding lifestyle and employment changes such as selling their former place of residence or deciding to remain in the temporary place of residence indefinitely, LAFHA ceases to be payable. In addition, if a contractor moves interstate to work for one recruitment company and then transfers to another recruitment company, LAFHA will cease.
Overpayment will have to be paid back to the ATO in all cases, without exception. For this reason, PayMe requires that you sign a legally binding document stating that any ATO liabilities are your liabilities; not PayMe's.
