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Fringe Benefits Tax (FBT) Reform and the Living Away From Home Allowance (LAFHA) – What it means for the Employer and Employee

The Government has announced changed to the FBT treatment of Living Away From Home benefits. What are the changes and what to they mean for you?

In principle, employees should pay for their housing and food costs out of income that has already been taxed. That is how most Australians currently pay for their rent and food costs.

However, the tax system currently assists some people who are living away from home with their accommodation and food expenses. The employer usually does not have to pay FBT on such expenses and the employee doesn't pay income tax on cash provided for those purposes.

Living Away From Home Allowance (LAFHA)
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.

Additional Expenses
The term "additional expenses" does not include expenses the employee would be entitled to claim as an income tax deduction. The aim of the allowance or benefit is to compensate for additional expenses and other disadvantages suffered because an employee is required by the employer to live away from their normal residence.

Usual place of residence
An employee is regarded as living away form their usual place of residence if they would have continued to live at the former place is they did not have to work temporarily in a different locality. The residence does now have to be the employee's permanent place of residence.

Employees who move to a new locality with an intention to return to their old locality at the end of the appointment would generally be treated as living away from their usual place of residence.



Taxable Value of LAFHA Benefit
The taxable value is the amount of the allowance paid, less either or both of the following:
  • Exempt Food Component
  • Exempt Accommodation Component
Exempt Food Component
The food component is compensation for expenses the employee could reasonably be expected to incur on food and drink.

The amounts listed below are acceptable as a reasonable food component without substantiation.

It is assumed that expenditure on food at the employee's usual residence is ordinarily $42 a week for each adult and $21 a week for each child. These rates make up the statutory food amount

Remember a LAFHA is an allowance you (the employer) pay to an employee to compensate for additional expenses i.e. what you reasonably pay on food less what you'd ordinarily pay for food.

To Structure the arrangement so that no FBT is payable you should not pay an employee more that $208 per weed i.e. $250 Reasonable Food Component less $42 Statutory Food Amount in the 2013 FBT Year (or $191 in the 2012 FBT Year).

Exempt Accommodation Component
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.
LAFHA Declaration
To reduce the LAFHA by the exempt accommodation component and/or the exempt food component, you must obtain a declaration from the employee. The declaration must set out the following details
  • The address of the place in Australia where the employee normally lives.
  • The address of the place, or places, where you resided while living away from home and
  • A statement that you satisfied the requirements of maintaining a home in Australia for that place is Australia.

Have Questions?

If you have any questions about the FBT Reform or LAFHA changes, please contact us at MJ Business Solutions and let us know.