Certified Practicing Accountant
Regi. Tax agent & Regi. ASIC Agent
Su Mo Tu We Th Fr Sa

Living away from home allowance -  Tax Deduction

The government realised long ago that sometimes getting a job, and then keeping it, can be a difficult task for some people. And if it's hard to find work in your local area, at times the realistic option is to move to another location if a job is available there.

The living away from home allowance (LAFHA) can at least make the task a little easier. 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).

The Tax Office defines "living away from home" by you having a "usual place of residence" that you would have continued to live in but for the fact that work commitments require you to temporarily live in a different locality. And people who move to a new locality for a stint at a particular job, and who intend to move back at the end of their appointment, will generally be treated by the Tax Office as living away from their usual place or residence.

The living away from home allowance can apply to Australians moving to locations within Australia, to overseas long-stay visa holders, or Australians working overseas.


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.

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.

Although "usual place of residence" is not defined, and so takes on its ordinary meaning, it is stipulated 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.

But there are straightforward LAFHA 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 industry employees living on offshore oil rigs.


Reforms, and the new regime

In November 2011, the government announced reforms to the fringe benefits tax (FBT) treatment of living-away-from-home allowances and benefits. Additions to these reforms were later announced in the 2012-13 federal budget, when the legislation was introduced into Parliament in June 2012, and during subsequent debate.

The additions ensured that living-away-from-home allowances and benefits are taxed entirely within the FBT system, rather than in the personal income tax system.

The last point will bring with it further consequences:

1. the allowance will be assessable income to the employee and reported on their year-end payment summary
2. provided the eligibility criteria is met, the employee will be able to deduct expenditure for accommodation and food on their income tax return
3. food expenses that exceed legislated limits will be deductible up to a reasonable amount
4. substantiation of food expenses which exceed an amount specified by the Commissioner of Taxation will be required; the threshold amount is yet to be announced
5. accommodation expenses can be substantiated by lease agreements, mortgage documents or other accommodation receipts.

The amendments to the law generally take effect from October 1, 2012 — however, there are some transitional rules (see below).

The reforms limit the concessional FBT treatment of living-away-from-home allowances and benefits provided to employees who maintain a home in Australia, but who are required to live away from that home because of the duties of their employment. The concessional treatment is limited to a period of 12 months for an employee at a particular work location.

Employees must be able to substantiate expenses incurred on accommodation, and food or drink (beyond the Commissioner of Taxation's reasonable amount).

Employees must provide the employer with a declaration relating to living away from home. Special rules apply to employees who are working on a fly-in fly-out or drive-in drive-out basis.

Transitional rules

Transitional rules apply to permanent residents who have employment arrangements for living-away-from-home allowances and benefits in place prior to 7.30pm (AEST) on 8 May 2012.

Transitional rules also apply to temporary or foreign residents who maintain a home in Australia that their duties of employment require them to live away from, and have employment arrangements for living-away-from-home allowances and benefits in place prior to 7.30pm (AEST) on 8 May 2012.

These include:

  • permanent residents — will not be required to maintain a home in Australia and the 12 month maximum period will not apply until the earlier of July 1, 2014, or a new employment agreement is entered into
  • temporary residents — the 12 month maximum period will not apply until the earlier of July 1, 2014 or a new employment agreement is entered into, however the employee must be maintaining a home in Australia that they are living away from.

Source: Taxpayers Australia Inc. website.