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When is LAFHA not a LAFHA?

One of our specialist industries at BBA is Transport.  With changes to the Fringe Benefits Tax legislation surrounding Living Away From Home Allowances (LAFHA), we've had many questions from our Transport industry clients asking how this affects them.

The general answer is "it doesn't".  What the industry refers to as a LAFHA is in fact a "Travel and Meal Allowance".  Although transport employers pay their interstate drivers an allowance for every night they are "away from home", the requirements for a LIVING away from home allowance are not met.

The Australian Taxation Office's definition of a LAFHA is "an allowance you (the employer) pay to an employee 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.

It is important to determine whether an allowance paid by you to your employee is a LAFHA or a travelling allowance, because they have different tax treatments. LAFHAs are a fringe benefit, whereas travelling allowances are part of the employee's assessable income and are not fringe benefits.

The following table sets out some of the indicators of whether the allowance is a LAFHA or travelling allowance:

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.

They are paid for short periods.

They change residence (temporarily) in relation to the payment of the allowance.

They have no change of residence.

The indicators above are guidelines only and no one indicator determines the nature of the allowance received. For example, a travelling allowance might be paid to a commercial traveller almost continuously, whereas 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. 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.

For more information, visit the ATO website