When performing employment duties you may also be entitled to an allowance for living away from home (LAFHA), in addition to the salary you can receive as an employee, which is used to compensate for the additional expenses and any disadvantage that you may suffer while assigned elsewhere.

Employees who have changed their normal place of residence as part of their work may qualify for a relocation allowance which must be distinguished from the LAFHA. The relocation allowance is taxed under the Pay As You Go (PAYG) scheme and the tax due is withheld at the source of payment while the LAFHA is subject to Fringe Benefits Tax (FBT).

Computing the taxable value of the allowance

The taxable value of the LAFHA is computed by deducting the value of the exempt food and accommodation components.

Exempt food component: this is the amount of the allowance paid to compensate the employee for additional food costs in the alternate location. While there are no strict guidelines for the calculation of this component, the amount must be reasonable and defensible.

You can arrive at an estimate of the food costs using either:

• The indexes and guidelines of the Australian Bureau of Statistics; or
• actual food expenses recorded in a specified period and by computing the difference between the average food expenditure in the home location and the average food expense in the alternate location; or
• ATO Guidelines.

Other factors that must be considered to arrive at a reasonable allowance for the food component are:

• The composition of the employee’s family a the start of the FBT year;
• the costs of food in the alternate location;
• the usual food expenditure in the home location.

The amount of the allowance that represents the reasonable accommodation expenses in the alternate locale is called the exempt accommodation component. Just like the food component, there is no strict rule or guideline for determining this amount although it must be reasonable and defensible, taking into consideration such factors as the position of the employee in the business structure and the size of the family who is accompanying the employee.

The Australian Tax Office requires you to provide a LAFHA declaration each FBT year to avail of the concessions. You will not be allowed reduce the amount of your tax by deducting exempt food and accommodation components without this declaration and the entire LAFHA payment will be subject to tax.

For advice relating to your specific situation please talk to your accountant.