The payment of a living-away-from-home allowance (LAFHA) is a fringe benefit.
For FBT purposes, 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's duties of employment require them to live away from their normal residence.
The term 'additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction.
For a payment to an employee to be considered a LAFHA, there are three conditions that must be met:
1. It is an allowance you pay your employee in respect of the employment of that employee.
2. The duties of their employment require them to live away from their normal residence.
3. The whole or part of the allowance is in the nature of compensation for:
- non-deductible additional expenses your employee might be expected to incur, or
- non-deductible additional expenses your employee might be expected to incur and other disadvantages suffered, because the duties of your employee's job require them to live away from their normal residence.
Duties of employment require your employee to live away from their normal residence
A LAFHA exists where some or all of the allowance is compensation to the employee for accommodation and additional living expenses that the employee might be expected to incur because the duties of the employee's employment require them to live away from their normal residence.
Whether an employee's job requires them to live away from their normal residence, and where the employee’s normal residence is located, is a question of fact and will depend on each employee’s circumstances.
'Normal residence' is a broad term that means a LAFHA fringe benefit can arise regardless of the location of an employee's usual place of residence.
While an employee’s usual place of residence may be in Australia or outside Australia, it is their normal residence that will be relevant for determining whether there is a LAFHA fringe benefit.
|If an employee's usual place of residence is…
||Then their normal residence is…
that usual place of residence
not in Australia and they have a place in Australia where they usually reside while living in Australia
that place in Australia they usually reside while living in Australia
not in Australia and they do not have a place in Australia where they usually reside while living in Australia
their usual place of residence overseas.
Employee’s usual place of residence is outside Australia and normal residence is Australian residence
Fiona, a British citizen, comes to Australia to work for three years. She intends to return to the United Kingdom at the end of the period. Her usual place of residence is in the United Kingdom.
Fiona takes out a lease and rents a home in Sydney for the duration of her employment in Australia.
After Fiona has been in Australia for six months, her employer asks her to work in the Melbourne office for six months. During the six-month period in which she will be working in the Melbourne office, Fiona is paid an allowance to cover her Melbourne food, drink and accommodation expenses.
For the purposes of determining whether the allowance is a LAFHA fringe benefit, the home in Sydney is considered to be her normal residence because it is the place in Australia where Fiona usually resides when in Australia.
End of example
Employee’s normal residence is usual place of residence and is outside Australia
Harry, a British citizen, comes to Australia to work for three years. He intends to return to the United Kingdom at the end of the period. His usual place of residence is in the United Kingdom.
Harry takes out a lease and rents a home in Sydney for the duration of his employment in Australia.
After Harry has been in Australia for a few weeks, his employer asks him to work in the Melbourne office for the remainder of his time in Australia. During the period in which he will be working in the Melbourne office, Harry is paid an allowance to cover his Melbourne food, drink and accommodation expenses.
Even though Harry has taken out a lease of the Sydney home for three years, Sydney would not be considered to be his normal residence in Australia because he had lived there only briefly – that is, Sydney could not be considered the place in Australia where Harry usually resides while in Australia. His normal residence in this case would be his usual place of residence in the United Kingdom.
End of example
Usual place of residence
An employee’s place of residence is the place at which they reside or have some form of sleeping accommodation, regardless of whether on a permanent or temporary basis, or on a shared basis. However, the question of whether an employee is living away from their usual place of residence involves a consideration of two places of residence – the place where the employee is living at the time, and some other place.
An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality.
Former home continues to be usual place of residence
An employee is transferred by his employer from Sydney to Newcastle to help install a new item of plant. For the duration of this appointment, the employee's immediate family continues to live at his former address, where he returns every weekend.
End of example
Former home has ceased to be usual place of residence
An employee is transferred by his employer from Sydney to Newcastle. Just before the transfer, the employee separated from his wife, who continues to reside at the former address with the employee's children. Apart from irregular visits to see the children, the employee will not be returning to his former residence.
End of example
Practical guidelines for determining whether living away from home
The principles of determining whether an employee is living away from their usual place of residence have been established over the years by case law decisions. Whether or not an employee is living away from home will depend on the facts of each case. Similar principles can apply to determine if an employee is living away from their normal residence.
Factors such as the lifestyle of the employee and the type of profession and industry often need to be taken into consideration.
Other relevant factors may include whether personal details, such as the employee's driver's licence or electoral enrolment, have been changed; whether the former house was being looked after by relatives or friends for the time the employee was at the new locality; or whether the former residence was being rented out for the time they were at the new locality. These may also affect the calculation of the taxable value of any LAFHA fringe benefit.
Some employees do not have a fixed usual place of residence because of the transitory nature of their lifestyle, which means that their normal residence is wherever they happen to sleep at night. An example would be employees who follow a job from construction site to construction site and have no permanent place of residence – these employees will not generally be regarded as living away from home.
Examples of employees on appointments of finite duration who will generally be living away from their usual places of residence are foreign nationals employed in Australia (expatriate employees) and Australian residents stationed in foreign countries for a time – for example, export consultants, diplomats and immigration officials.
The same applies where an employee transfers to a new locality within Australia on an appointment of fixed duration, provided the permanent job location does not change. An example would be an arrangement where an employee transfers to a branch office of the employer in another state for a two-year or three-year term on the basis that they will return to the permanent position at the end of that time. The employee would be regarded as living away from their normal residence provided that they intend to return there at the end of the term of the transfer.
The general presumption is that a person's normal residence will be close to where they are permanently employed.
Generally, employees in the following kinds of situations would be regarded as living away from their normal residence:
- construction workers living in camps, barracks or huts
- oil industry employees living on offshore oil rigs
- marine industry employees living on board vessels
- trainee employees, such as trainee teachers, who are living away from home in order to undergo training courses of extended duration. Employees attending short-term staff training courses would generally be treated as travelling in the course of their employment.
For further information about the difference between a travelling allowance and a LAFHA, see section 11.12 of this document.
End of further information
Employees who work on an oil rig, or other petroleum or gas installation at sea, are generally provided with residential accommodation at or near the worksite. An allowance you pay in such circumstances to compensate employees for disadvantages suffered because their duties of employment require them to live away from their usual place of residence is a LAFHA for FBT purposes, provided the allowance is expressly stated to be a LAFHA. For these employees, they do not need to have a usual place of residence in Australia.