The taxable value of a LAFHA is the total allowance paid less the exempt food component and the exempt accommodation component.
Exempt food component
The exempt food component of LAFHA is the amount of the allowance paid to compensate the employee for additional food costs in the alternate location. The exempt food component may be paid as part of a number of allowances. For example, the cost of living allowance would include an exempt food component and a child allowance may include an exempt food component.
There are no strict guidelines on how the exempt food component is to be calculated, provided the amount is reasonable and defensible. It should reflect the additional food expenses in the alternate location.
The Australian Bureau of Statistics and a number of commercial organisations provide indexes and guidelines that can be used to estimate the additional food costs in a particular location.
Alternatively, the food component may be based on records kept in the alternate location over a representative period (for example, 12 weeks) less the average food expenditure in the home location. This amount would be a reasonable and defensible amount to use in calculating the exempt food component of the LAFHA.
The exempt food component should take into account a number of factors, including:
- the composition of the employee's family, being the number of adults (12 years or more) and the number of children (under 12 years of age) at the start of the FBT year
- the costs of food in the alternate location
- the usual food expenditure in the home location.
The FBTAA specifies 'statutory food amounts', being the assumed expenditure on food at the employee's home location. The statutory food amounts are $42 per week for each adult and $21 per week for each child. For this purpose, an adult is a person who had attained the age of 12 years before the beginning of the FBT year.
The exempt food component calculation should be reviewed by someone with sufficient experience and understanding of the operation of the LAFHA provisions to determine whether the exempt food component is reasonable and defensible.
Exempt accommodation component
The exempt accommodation component of a LAFHA is the amount of the allowance that represents the reasonable accommodation costs in the alternate location.
There is no definition of 'reasonable', but the costs should take into account the position of the employee in the entity and whether the employee's family is accompanying the employee. For example, an employee with seven children could be expected to spend more on accommodation than a single person. Similarly, an employee who has responsibility for entertaining at home as part of his or her employment could be expected to have higher accommodation costs than an employee without such responsibilities.