Fringe benefits tax - a guide for employers

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Chapter 11 - Living-away-from-home allowance fringe benefits

Unlike most other types of fringe benefits, a living-away-from-home allowance fringe benefit can only be provided by the employer to the employee.

The information provided relates to the application of the FBT law to living-away-from-home allowance fringe benefits as at 1 October 2012. For information about the application of the FBT law to such fringe benefits provided because the employee was living away from home (LAFH) before 1 October 2012, see Living-away-from-home-allowances - before 1 October 2012.

11.1 Overview

For fringe benefits tax (FBT) purposes, a living-away-from-home allowance (LAFHA) is an allowance you (the employer) pay to your 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.

Instead of paying a cash LAFHA to an employee, you could provide other fringe benefits, either by:

  • reimbursing the employee's actual food costs and/or accommodation expenses incurred at the new location, or
  • providing the food or accommodation yourself.

See also:

Changes were made to the FBT law in relation to the concessional tax treatment of LAFH allowances and benefits.

Current law

Previous law

Access to the tax concessions for living-away-from-home allowances and benefits is limited to a period of 12 months for an employee (other than employees working on a fly-in fly-out or drive-in drive-out basis) at a particular work location, and to cases where the employee:

  • maintains a home in Australia at which they usually reside and is available for their immediate use and enjoyment during that period that their duties of employment require them to live away from home and
  • can substantiate all expenses incurred on accommodation and
  • can substantiate all expenses incurred on food or drink (if the food or drink expenses incurred are more than the Commissioner of Taxation's reasonable amounts) and
  • provides you with a declaration about living away from home and, where required, a declaration on substantiation.

 

No 12-month limitation applies.

No requirement to maintain a home in Australia before the LAFH tax concession can apply.

No requirement to be able to substantiate expenses before the LAFH tax concessions can apply.

Only needed to make a declaration about living away from home.

Special rules apply to employees who are working on a fly-in fly-out (FIFO) and drive-in drive-out (DIDO) basis. These employees:

  • do not have to maintain a home in Australia for their own use and enjoyment for the concessional tax treatment to apply in relation to these living away from home fringe benefits and
  • are not limited to a 12-month period for the concessional tax treatment.

However, these employees must still:

  • substantiate their expenses incurred on accommodation and
  • substantiate their expenses incurred on food or drink (if the food or drink expenses are more than the Commissioner's reasonable amount) and
  • provide you with a declaration relating to living away from home and, where required, a declaration on substantiation.

 

The concept of FIFO and DIDO was not strictly part of LAFH.

You can reduce the taxable value of LAFH allowances provided to these employees by:

  • the amount of employee's actual substantiated accommodation expenditure while living away from home, and
  • the amounts incurred by the employee for food or drink costs while living away from home less (minus) a statutory amount if applicable.

 

The taxable value could be reduced by the exempt accommodation and exempt food components.

Transitional rules may affect the above requirements.

Does the current law or the previous law apply?

LAFHA law scenarios

If...

Then...

The LAFHA is paid because the employee is living away from home from 1 October 2012 onwards

The current law applies (subject to transitional rules).

The LAFHA is paid because the employee was living away from home before 1 October 2012

The previous law applies.

Example
Michelle receives a LAFHA from her employer on the 30 June 2012. The LAFHA is paid to cover the additional accommodation and food or drink expenses Michelle is expected to incur over the next 12 months because Michelle's job requires her to live away from home.
The taxable value of that part of the LAFHA paid because Michelle was living away from home from 1 October 2012 onwards will be determined under the current law (subject to the transitional rules). The taxable value of that part of the LAFHA paid because Michelle was living away from home on or before 30 September 2012 is determined under the previous law.

The information provided in this chapter relates to the current law.

See also:

11.2 What is a living-away-from-home allowance fringe benefit?

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

'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.

Place of residence scenarios

If an employee's usual place of residence is...

Then their normal residence is...

in Australia

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.

Example:
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.
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.

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.

Example:
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.
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.

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.

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.

11.3 Steps to take if you want to pay your employee a LAFHA

If you pay your employee a LAFHA, you need to do the following:

Step

Action

Section reference in this document

1

Ensure that the amount paid to the employee is in fact a LAFHA by definition.

11.2 , 11.13

2 a

Calculate the taxable value of the LAFHA fringe benefit. This can vary, depending on whether:



The employee is a temporary or foreign resident and the transitional rules apply

11.4 , 11.5 , 11.6 , 11.7 , 11.10

b

The employee is not a temporary or foreign resident and the transitional rules apply

11.4 , 11.5 , 11.6 , 11.10

c

The employee maintains a home in Australia at which they usually reside and the fringe benefit relates to the first 12-month period, and the transitional rules do not apply

11.4 , 11.5 , 11.6 , 11.7 , 11.8

d

The employee works on a fly-in fly-out or drive-in drive-out basis

11.4 , 11.5 , 11.6 , 11.7 , 11.9

e

Any other circumstance applies

11.4

3

Keep the appropriate records and declarations

11.11 and Fringe benefits tax record keeping (chapter 4)

4

If required, report an amount as a reportable fringe benefit on the employee's payment summary (not as a taxable allowance).

Reportable fringe benefits (chapter 5).

If you are not paying a cash LAFHA to your employee, but rather are providing accommodation or food or drink, or reimbursing them for these expenses, see section 11.13 in this document.

11.4 Taxable value

The taxable value of the LAFHA fringe benefit depends on the circumstances of the employee. The calculation of the taxable value falls into three circumstances:

  • the employee maintains a home in Australia at which they usually reside, and the fringe benefit relates to the first 12-month period (note that transitional rules may apply)
  • the employee is working on a fly-in fly-out or drive-in drive-out basis
  • all other cases.
Taxable value of the LAFHA fringe benefit

If your employee

Then the taxable value is

  • Maintains a home in Australia at which they usually reside and it is available for their use at all times,
  • Receives a LAFHA fringe benefit which relates to the first 12-month period at a particular work location, and
  • Gives you the appropriate declaration about living away from home

(transitional rules may apply, see 11.10 of this document)

The amount of the LAFHA paid, minus:

  • any exempt accommodation component, and
  • any exempt food component.

 

  • Works on a fly-in fly-out or drive-in drive-out basis
  • Has residential accommodation at or near their usual place of employment, and
  • Gives you the appropriate declaration about living away from home

 

The amount of the LAFHA paid, minus:

  • any exempt accommodation component, and
  • any exempt food component.

 

Does not fall into either of the above situations

The amount of the fringe benefit.

The taxable value is not reduced by any exempt food component to the extent the fringe benefit relates to a period during which the employee resumes living at his or her normal residence. This means that if you pay an allowance for food or drink during any days that the employee returns home, the allowance that relates to those days is fully taxable for FBT purposes.

11.5 Exempt accommodation component" component

The accommodation component is the amount of the LAFHA fringe benefit that it is reasonable to conclude is compensation for expenses to be incurred by the employee for accommodation while the employee is living away from home. The accommodation expenses are for both the employee and any eligible family members, such as the employee's spouse and children.

The exempt accommodation component is so much of the accommodation component that equals the accommodation expenses actually incurred by the employee. Where a family member incurs these expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee and, therefore, the employee is still the person incurring those expenses. The employee must substantiate all accommodation expenses.

If an employee does not spend all of the LAFHA provided in respect of the accommodation component, the excess is not an exempt accommodation component and is taxable.

Example
Steve receives a LAFHA from his employer which includes an accommodation component of $450 while he is seconded to Perth for 12 months. His normal residence is in Melbourne, and his Melbourne home continues to be available for his immediate use during his secondment. Steve resides with his wife, Helen, who rents a house in Perth for 12 months at a cost of $450 per week. The exempt accommodation component in this case is $450, provided the substantiation requirements are met.
Example
Steve and his wife Helen both work for the same employer and receive a LAFHA. Each LAFHA includes an accommodation component of $450 while they are seconded to Perth for 12 months. Steve and Helen's normal residence is in Melbourne, and their Melbourne home continues to be available for their immediate use during their secondment. Steve and Helen rent a house together in Perth at a cost of $450 per week.
Steve and Helen's separate exempt accommodation components in this case are $225 each per week, provided the substantiation requirements are met.
As Steve and Helen are each receiving an accommodation component of $450 per week, but are only spending $225 each per week, the excess of $225 each per week ($450 - $225) is not an exempt accommodation component. This excess of $225 each per week will form part of the taxable value of their respective LAFHA fringe benefits.

11.6 Exempt food component

The steps for calculating the exempt food component are outlined below:

Step

Action

1

Establish the food component

2

Subtract the applicable statutory food total from the food component.

That is:

Food component - applicable statutory food total.

3

From the amount calculated at step 2, determine how much of that amount was incurred by the employee on food and drink.

4

The exempt food component is so much of the result of step 3 that can be substantiated if required.

Where a family member incurs these expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee and, therefore, the employee is still the person incurring those expenses.

The exempt food component does not include food expenses relating to any days during which the employee resumes living at his or her normal residence - this means that if you pay an allowance for food or drink for any days that the employee returns home, that part of the allowance for those days is fully taxable.

Food component

The food component in relation to a LAFHA fringe benefit is so much that might reasonably be concluded is compensation for expenses to be incurred by the employee for food or drink while the employee is living away from home. The expenses are for food or drink for both the employee and any eligible family members.

Applicable statutory food total

The applicable statutory food total is:

  • the sum (total) of the statutory food amounts of the employee and any eligible family members
  • less (minus)
  • any amount that might reasonably be expected to be the total normal food or drink expenses for eligible family members had they remained living in their normal residence during the period, and was taken into account by the employer in working out the food component.

The applicable statutory food total cannot be below zero.

The statutory food amount is $42 a week for each adult, and $21 a 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 applicable statutory food total calculation reflects two alternative practices:

one where you may provide an allowance that is net of the statutory food amount to compensate employees only for additional food or drink expenses.

the other being where you provide an allowance that includes the statutory food amount to compensate employees for total food or drink expenses.

Example:
Allowance includes compensation for additional food costs
An employee living away from their normal residence is paid a LAFHA of $933 per week. Of that allowance:
  • $700 is compensation for the cost of accommodation, which is fully spent by the employee on accommodation and is substantiated by the employee.
  • $233 represents compensation for the additional food costs only while living away from home. The employee declares that they have spent no more than the Commissioner's reasonable food amount and, therefore, is not required to substantiate their expenditure.
In this example, the allowance includes compensation for additional food costs. The employer calculated the $233 food component by deducting $42 (estimated normal home food consumption costs) from the estimated food costs of $275.
The taxable value is calculated as follows, because the substantiation requirements are met:

Total allowance

Less (minus):

 

$933

Exempt accommodation component

and

$700

 

Exempt food component*

$233$933

Taxable value

 

$0

*In this case, the exempt food component is $233 - ($42 - $42).

Because the food allowance is only for additional food costs, the exempt food component is $233. This amount is not required to be substantiated because it does not exceed the Commissioner's reasonable amount for food and drink expenditure.

Example:
Allowance includes compensation for total food costs
An employee living away from their normal residence is paid a LAFHA of $900. Of that allowance:
  • $500 is compensation for the cost of accommodation, which is fully spent by the employee on accommodation. The employee substantiates their accommodation expenditure.
  • $320 represents compensation for the total food costs while living away from home. This amount is more than the Commissioner's reasonable food amount and the employee actually spends $260 on food. The employee substantiates their total food expenditure.
  • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.

The taxable value is calculated as follows, because the substantiation requirements are met:

Total allowance

Less (minus):

 

$900

Exempt accommodation component

and

$500

 

Exempt food component*

$260$760

Taxable value

 

$140

*In this case, the exempt food component is $320 - ($42 - $0) = $278. However, because the employee only spent $260 (and this can be substantiated) this becomes the exempt food component.

The taxable value is $80 paid for disadvantages suffered for living away from home + $60 food component that was not spent = $140.

The $60 consists of the $42 statutory food amount plus the remaining $18 difference between the $278 - $260.

Commissioner's reasonable food amount

The Commissioner will issue an annual taxation determination specifying the reasonable amount for food and drink expenses for future years. The Commissioner determines a reasonable amount for food and drink expenses incurred by the employee for which substantiation is not required.

An employee is required to substantiate all the expenses incurred on food and drink if the total of those expenses incurred exceeds the amount the Commissioner considers reasonable.

However, while the Commissioner will determine the amounts that are considered reasonable for the purposes of alleviating the requirement for an employee to substantiate expenses incurred on food and drink, the Commissioner does not determine if a LAFHA paid to an employee is reasonable or not.

The amount paid as a LAFHA is a matter to be determined between you and your employee, having regard to appropriate matters, such as any industrial laws or requirements.

Expenditure equal to or less than the Commissioner's reasonable food amount

Where the employee incurs expenditure on food or drink that is equal to or less than the Commissioner's reasonable food amount, no substantiation of the food or drink expenditure is required. Before paying a LAFHA which consists of a food component, you must be able to conclude that an employee will incur expenditure on food or drink. As a result, it is reasonable for you to be satisfied that there has been expenditure on food or drink up to the Commissioner's reasonable amount.

This means that the Commissioner accepts that the employee has spent an amount equal to the lesser of either :

  • the food component (if it is less than the Commissioner's reasonable food amount), or
  • the Commissioner's reasonable food amount

on food or drink for the purposes of this calculation where no substantiation is required.

The effect of paying an allowance where the employee's expenditure is equal to or less than the Commissioner's reasonable food amount is outlined in the table below.

If you pay an allowance that is..

And the expenditure incurred by the employee is equal to or less than the Commissioner's reasonable food amount then..

  • for additional food costs, and is less than or equal to the Commissioner's reasonable food amount

 

  • No substantiation is required.
  • The taxable value of the food component is nil.

 

  • for additional food costs and is more than the Commissioner's reasonable food amount

 

  • No substantiation is required.
  • The taxable value is the difference between the allowance paid and the Commissioner's reasonable food amount.

 

  • for total food costs and
  • equal to the total of the Commissioner's reasonable food amount + an amount up to the statutory food total

 

  • No substantiation is required.
  • The taxable value of the allowance is the statutory food total.

 

  • for total food costs and
  • equal to the total of the Commissioner's reasonable food amount plus an amount greater than the statutory food total

 

  • No substantiation is required.
  • The taxable value of the allowance will be at least the amount of the statutory food total.

 

See also: 

  • 11.11 of this document for more information on the record keeping requirements.
  • TD 2013/4 - for the reasonable amount for food or drink expenses which will apply from 1 April 2013.
  • TD 2012/5 - for the period from 1 October 2012 to 31 March 2013, you should apply the reasonable amounts.
Example:
Allowance includes compensation for additional food costs and expenditure is less than Commissioner's reasonable food amount
An employee living away from their normal residence is paid a LAFHA of $630 per week. Of that allowance:
  • $350 is compensation for the cost of accommodation. This amount is fully spent by the employee on their accommodation and is substantiated by the employee.
  • $200 is compensation for the additional cost of food while away from home. The normal food costs of the employee were taken into account by the employer. This is less than the Commissioner's reasonable food amount.
  • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.

The taxable value is calculated as follows, assuming the substantiation requirements for the accommodation component is met:

Total allowance

Less (minus):

 

$630

Exempt accommodation component

and

$350

 

Exempt food component*

$200$550

Taxable value

 

$80

*Amount taken to be spent on food less (minus) statutory food amount - that is, $200 - ($42 - $42) = $200.

Because the food component paid is $200, which is less than the Commissioner's reasonable food amount, the full amount of the food component is accepted as having been spent.

The taxable value is:

  • $80 paid for disadvantages suffered for living away from home.

 

Example:
Allowance includes compensation for total food costs and expenditure is less than Commissioner's reasonable food amount
An employee living away from their normal residence is paid a LAFHA of $730 per week. Of that allowance:
  • $350 is compensation for the cost of accommodation. This amount is fully spent by the employee on their accommodation and is substantiated by the employee.
  • $300 is compensation for the total cost of food while away from home. The employee advises they have spent less than the Commissioner's reasonable food amount.
  • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.

The taxable value is calculated as follows, because the substantiation requirements for the accommodation component are met and where the Commissioner's reasonable food amount is $233:

Total allowance

Less (minus):

 

$730

Exempt accommodation component

and

$350

 

Exempt food component*

$233$583

Taxable value

 

$147

*Food component - applicable statutory food total, that is $300 - ($42 - $0) = $258. Because there is no substantiation required because the amount spent by the employee is less than the Commissioner's reasonable food amount, the exempt food component is accepted as being the Commissioner's reasonable food amount of $233.

The taxable value is:

  • $80 paid for disadvantages suffered for living away from home
  • $67 being the $42 statutory food total plus the $25 (that is, $258 - $233) that was not included in the exempt food component (as substantiation was not required because the employee spent less than the Commissioner's reasonable food amount on food and drink).

 

11.7 Employee maintains a home in Australia

An employee's home in Australia (the place in Australia where they usually reside) can be a unit of accommodation as defined in the FBT legislation. This definition is broad and includes a house, flat, home unit, caravan or accommodation in living quarters.

To maintain a home in Australia, all of the following must apply:

  • the employee or their spouse must have an ownership interest in a home
  • that home must be available for their immediate use and enjoyment at all times while they are living away from it, and
  • it is reasonable to expect that the employee will resume living at that home when they are no longer living away from home for the purposes of their employment.

Ownership interest

Ownership interest includes both a legal or equitable interest, and a licence or right to occupy a dwelling. An employee or their spouse can have an ownership interest in a home they own or rent.

An adult child living with their parents generally does not have an ownership interest in the home and, therefore, is not maintaining a home as required, because they are not usually responsible for the mortgage or rental payments. Any payment of board would not change this position because the payment of board is considered to be a domestic arrangement.

Immediate use and enjoyment

For the employee to maintain a home for their immediate use and enjoyment at all times, the entire home cannot be rented out or sublet while they are living away from it. The employee must incur the ongoing costs of maintaining the residence, such as mortgage or rental payments and rates. The employee must be able to return to the home at any time and take up immediate occupancy.

Boarders, tenants or house-sitters

If an employee has a boarder or tenant staying with them in their normal residence, the employee can still be considered to be maintaining the home for their own use and enjoyment. However, the boarder's or tenant's stay must not impinge on the availability of the residence for the individual's immediate use and enjoyment.

Likewise, if an employee has a house-sitter in their home while they are living away from it, they will be maintaining the home when the house-sitter is either:

  • required to vacate the residence, or
  • their stay does not impinge on the employee's use and enjoyment of it whenever the employee returns home - for example, during temporary visits.

Similarly, if an employee decides to rent or sublet a part of their home while they are living away from it, such as a bedroom or granny flat, they will be maintaining a home for their own use and enjoyment if the employee continues to have occupancy rights and the rental or sublet does not restrict the employee's use and enjoyment of the property when the employee returns home.

11.8 First 12 months employee is required to live away from home

The fringe benefit has to relate to all or part of the first 12 months that an employee is living away from home in Australia for the purposes of their employment. The 12 months do not have to be consecutive.

You can choose to pause the 12-month period - for example, you may choose to pause the period because the employee is taking leave, such as annual leave, long service leave or sick leave. This gives you the flexibility to pause the period when circumstances arise in which it is appropriate and beneficial to do so.

The table below outlines how the 12-month period is affected by various employment situations.

If...

Then...

You pause the 12-month period for the employee and continue to pay them a LAFHA

The taxable value of the fringe benefit is not reduced by any exempt accommodation or exempt food component during the paused period.

The full amount of the fringe benefit is taxable during the paused period.

  • The employee moves to another location to perform the duties of employment (the employee's work location changes), and
  • it is unreasonable to expect the employee to commute to the new location from the earlier location for which a LAFHA was provided

 

A new 12-month period starts at the new employment location.

The balance of the 12-month period is available if the employee returns to the previous employment location.

An employee takes up employment with an associate of their employer, and works in the same employment location

The 12-month period is not affected - that is, it is accumulated under both employers; there is not a new 12 months under the associated employer.

Any other changes in the nature of the employee's employment are made within the same work location, such as changes to the conditions of employment (a promotion of the employee to a management position, or a change in the employee's job title)

The 12-month period is not affected.

The employee takes up employment with a different employer, who is not an associate of their previous employer

A new 12-month period starts when the employee changes employers.

Example
Jess receives a LAFHA from her employer while she is seconded to Brisbane for 12 months. Her normal place of residence is in Canberra. She is living in a serviced apartment in Brisbane.
Part of the way through the secondment, Jess takes a month's leave. Her employer wants her to complete a full 12-month secondment in Brisbane and pauses the 12-month period while she is on leave.
During the paused period, Jess does not lease the serviced apartment in Brisbane and her employer does not pay her a LAFHA.
When Jess resumes her secondment in Brisbane, the employer again pays her a LAFHA and the 12-month period recommences.
Had Jess continued to lease the serviced apartment during the pause in the

12-month period, and Jess's employer continued to pay her a LAFHA during this time, Jess's employer would not have been able to reduce the taxable value of the LAFHA by the amount of the allowance paid for the period of leave.
Example
Frank lives and works in Canberra. His employer asks him to work in Sydney for a period of nine months, for which a LAFHA will be paid. After that period of employment in Sydney, Frank returns to Canberra. The LAFHA fringe benefit provided to Frank for the nine months relates to part of the first 12 months that Frank is living away from his Australian home.
At a later time, Frank's employer asks him to work in Melbourne for a number of months. Because this is a new work location, a new 12-month period starts for any LAFHA paid to Frank during his time working in Melbourne.
Example
James is living away from home and is paid a LAFHA by his employer. James's employer undergoes a corporate restructure. James is transferred to a separate entity, who is not an associate of the employer, and works in the same work location. A new 12-month period commences for the new employer in James's case.
Example
Stephen is paid a LAFHA by his employer, a state government department, for living away from home. His employer transfers him to work, in the same location, for a state-owned corporation that is an associate of the department. The 12-month period continues and a new 12-month period does not commence in this case.
Example
Ruth lives and works in Brisbane. For three months of the year, her job requires her to live away from her normal residence and work in Canberra. She returns to her normal residence in Brisbane for the remainder of the year.
This arrangement continues for five years, during which time there is no change to Ruth's employer, work location and duties.
In this case, the LAFHA paid by Ruth's employer is taxed concessionally in each of the first four years. In each of those years, only three months of the first 12 months are used.
In the last year, the value of the fringe benefit is not reduced by any exempt accommodation or exempt food component because the benefit does not relate to all or part of the first 12 months that Ruth is living away from home while working at that same location.

11.9 Fly-in fly-out and drive-in drive-out employees

The employee is considered to be working on a fly-in fly-out or drive-in drive-out (or equivalent) basis when all of the following apply:

  • on a regular and rotational basis, the employee works for a number of days and has a number of days off which are not the same days in consecutive weeks (that is, following one week after another without interruption), such as a standard five-day working week and weekend
  • the employee returns to the employee's normal residence during the days off
  • it is customary in the industry in which the employee works for employees performing similar duties to work on a rotational basis and return home during days off - for example, miners - and the work duties continue to be undertaken by other employees on a rotational basis while any particular employee is on their days off
  • it is unreasonable to expect the employee to travel to and from work and the normal residence on a daily basis, given the locations of the employment and their home, and
  • it is reasonable to expect that the employee will resume living at the normal residence when the employment duties no longer require them to live away from home.
Example
An employee works in the mining industry on a 7-day on, 7-day off roster. The employee works Sunday through to Saturday, and has the following Sunday through to Saturday off.
In this case, the employee is not working the same days in consecutive weeks because the employee is working every day in one week, then not working in the next, and is doing this on a rotational basis.
This is contrasted with an employee who works Monday through to Friday and has Saturday and Sunday off, and does the same in the next week. An employee in this instance is working the same days in each week - they are working on a consecutive basis, week after week.

11.10 Transitional rules

Transitional rules may apply to some employees where certain conditions are met.

If your employee is...

Then this employee...

A temporary or foreign resident who:

  • had an eligible employment arrangement:  
    • in place before 7.30pm (AEST) on 8 May 2012, and
    • that was not materially varied or renewed from 7.30pm on 8 May 2012 up to and including 30 September 2012, and
  • maintained a home in Australia for their immediate use and enjoyment at all times during the period their duties of employment required them to live away from it

 

is not limited to the LAFHA concessions for 12 months before the earlier of:

  • 1 July 2014
  • the date of a material variation in the employment arrangement
  • the date of renewal of the eligible employment arrangement, or
  • the date the eligible employment arrangement ends.

 

Neither a temporary or a foreign resident and had an eligible employment arrangement:

  • in place before 7.30pm (AEST) on 8 May 2012 and
  • that was not materially varied or renewed from 7.30pm on 8 May 2012 up to and including 30 September 2012

 

  • is not required to maintain a home in Australia
  • is not limited to the LAFHA concessions for 12 months.
  • This is until the earlier of:  
    • 1 July 2014
    • the date of a material variation in the eligible employment arrangement
    • the date of renewal of the eligible employment arrangement, or
    • the date the eligible employment arrangement ends.

Note: the 12-month period starts from 1 October 2012 for the purposes of the transitional rules, regardless of the date of any renewal or material variation.

The terms temporary resident and foreign resident have their meaning given by section  995-1 of the Income Tax Assessment Act 1997 . The meaning of temporary resident can also be found by referring to Foreign income exemption for temporary residents - introduction

Eligible employment arrangement

An eligible employment arrangement is the arrangement under which the employer or an associate of the employer commits to provide a particular employee with an allowance or benefit for the employee's accommodation, food or drink. This is as a result of the employee's duties of employment requiring the employee to live away from his or her normal residence.

Depending on the circumstances, an eligible employment arrangement could be the contract of employment, award, enterprise agreement, or any additional arrangements involving the employer and employee.

A general agreement covering all employees, such as an award or enterprise agreement, which provides for the payment of an allowance or benefit if an employee's employment duties require the employee to live away from his or her normal residence, is not an eligible employment arrangement.

Example
Peter is an Australian resident who commenced employment in his employer's Melbourne branch prior to 8 May 2012.
Peter's employment arrangement is governed by an enterprise agreement entered into before 8 May 2012. The enterprise agreement provides for the payment of a LAFHA to employees who are required to live away from their normal residence to perform their duties of employment.
Peter's normal residence is in Melbourne.
In January 2013, Peter and his employer agreed for him to commence an 18-month secondment in the Sydney branch from 1 February 2013. As part of the agreement, the employer advised Peter that he will be paid a LAFHA during the secondment period, in accordance with the terms of the enterprise agreement.
The eligible employment arrangement in this example is the subsequent agreement under which the employer committed to pay Peter a LAFHA during the 18-month secondment period - it is not the enterprise agreement. As the eligible employment arrangement was not in place before 7.30pm (AEST) on 8 May 2012, the transitional rules will not apply to the LAFHA paid to Peter.

Maintaining a home in Australia and the transitional rules for permanent residents

Where the transitional rules apply, a resident who is not a temporary or foreign resident is not required to maintain a home in Australia until the earlier of either :

  • 1 July 2014, or
  • the date that the employment arrangement was materially varied or renewed.

If the transitional rules apply, employees who are permanent residents only need to have an intention to return to the same city or district at the end of their appointment. It is acceptable that the employee's residence has been rented out or sold, as long as the employee intends to return to their old locality.

12-month period and transitional rules

Where the transitional rules apply, the concessional treatment does not apply for another 12 months starting from the earlier of 1 July 2014 or the date of a material variation in the employment arrangement. The 12-month period is taken to notionally commence on 1 October 2012.

If there is no material variation to the employment arrangement, then the transitional rules will continue to apply until 30 June 2014. Once there is a material variation to the employment arrangement, then the concessional treatment will stop immediately if such treatment has already applied for at least 12 months from 1 October 2012. If concessional treatment has not applied for at least 12 months, then it will continue to apply only to the balance of the 12-month period.

Example
Meg is an Australian resident who has been receiving a LAFHA and has had an employment arrangement in place since 1 January 2010. Meg's employment arrangement has not been materially varied or renewed.
If Meg's employment situation does not change, Meg's LAFHA will continue to be taxed concessionally until 30 June 2014. Meg's employer will not be able to apply the concessional taxation treatment of Meg's LAFHA for another 12 months from 1 July 2014.
If Meg's employment contract was materially varied on 1 February 2013, Meg's employer would have received concessional tax treatment of the LAFHA for a period of four months - from 1 October 2012 to 31 January 2013. Meg's LAFHA would continue to be taxed concessionally for another eight months - that is, until 30 September 2013 - provided that from 1 February 2013, Meg was maintaining a home in Australia that she was living away from. This means that the 12-month period for Meg started on 1 October 2012 under the transitional rules, regardless of the fact that the material variation to her contract occurred on 1 February 2013. The 12-month period does not commence on 1 February 2013.
If Meg's employment contract was materially varied on 1 February 2014, then the concessional treatment of the LAFHA would cease immediately because there has already been concessional treatment of the LAFHA for at least 12 months - that is, from 1 October 2012 to 31 January 2014, a period of 16 months.

Material variation or renewal of employment arrangement

A material variation occurs when fundamental changes are made to the employment arrangement.

For the purposes of the transitional rules, an annual salary review is not a material variation to an employment arrangement. Changes to an employment arrangement to reflect other annual adjustments, such as the food component of a LAFHA, do not constitute a material variation.

In the case of promotions, it will be a matter of fact, depending on the circumstances of each case - for example, if an employee is promoted and the underlying terms of their employment arrangement do not change, there has not been a material variation in the employment arrangement. However, if there are fundamental differences to the employment arrangement arising from the promotion, the employment arrangement has been the subject of a material variation.

Where an employer formally extends the employee's secondment period, through issuing a new contract or by letter confirming an extension to a current arrangement, that would constitute a material variation or renewal of an eligible employment arrangement.

11.11 Record keeping requirements

Employee declarations

To access the concessional treatment for LAFHAs and benefits, your employee will need to give you a declaration about living away from home. The declaration must be in the approved form and will vary depending on your employee's situation.

Your employee may also give you a declaration to substantiate their exempt accommodation and exempt food expenditure.

Situation

Declaration

Employee received a LAFH allowance or benefit before 1 October 2012

Living-away-from-home declaration

Employee who is not a temporary or foreign resident received a LAFH allowance or benefit from 1 October 2012 and qualifies for the transitional rules

Living-away-from-home declaration - from 1 October under transitional rules

Employee received a LAFH allowance or benefit from 1 October 2012 and works on a FIFO or DIDO basis

Living-away-from-home declaration - employees who fly-in fly-out or drive-in drive-out

Employees should not use this declaration if they either:

  • qualify for the transitional rules
  • received the benefit of both the use of accommodation and transport to and from their usual place of residence.

 

Employee received a LAFH allowance or benefit from 1 October 2012 and they are required to maintain a home in Australia at which they usually reside and the fringe benefit relates to the first 12-month period

Living-away-from-home declaration - employees who maintain an Australian home

Employees should not use this declaration if they are either:

  • a fly-in fly-out or drive-in drive-out employee, or
  • are not a temporary or foreign resident but they qualify for the transitional rules.

 

Employee received a LAFHA from 1 October 2012 and chooses to provide their employer with a declaration about their accommodation and food or drink expenses

Living-away-from-home declaration - employee related expenses

Employees should not use this declaration if they have provided you with documentary evidence of their accommodation and food or drink expenses.

The food or drink section does not need to be completed if the food or drink expenses incurred do not exceed the amount the Commissioner considers reasonable.

Note: employees will also need to give you a declaration about living away from home.

You must obtain all employee declarations no later than the day on which your FBT return is due to be lodged with us or, if you don't have to lodge a return, by 21 May.

See also:

Exempt accommodation and exempt food components

To reduce the taxable value of a LAFHA by any exempt accommodation component and any exempt food component, you must obtain from your employee documentation substantiating the expense, as explained below.

Exempt accommodation component and exempt food component

Exempt accommodation component

Exempt food component

  • The expense must be substantiated in full.
  • The employee must give you, by the declaration date for the FBT year, either:  
    • documentary evidence of the payment of the expense ( credit card statements, bank statements, receipts) or a copy of these documents, or
    • a declaration about the expense in the approved form.

 

  • Where the food or drink expenses incurred are more than the Commissioner's reasonable amount, then all of the food or drink expenses must be substantiated (not just the amount in excess of the Commissioner's reasonable amount).
  • The employee must give you, by the declaration date for the FBT year, either:  
    • documentary evidence of the expense (receipts, tax invoices, credit card statements, bank statements) or a copy of these documents, or
    • a declaration about the expense in the approved form.
  • Where the food or drink expenses incurred are less than the Commissioner's reasonable amount, the employee does not have to substantiate the expense as above.

 

The Commissioner issues an annual Taxation Determination specifying the reasonable food or drink amount.

It is the amount of food or drink expenditure incurred by the employee that is relevant for the substantiation requirements, not the amount of the allowance paid.

See also:

Example
Fred's employer pays him more than the Commissioner's reasonable amount for food or drink expenses as part of his LAFHA. Fred incurs food or drink expenses to the full extent of the allowance provided. He must substantiate all his food or drink expenses incurred, not just the amount in excess of the Commissioner's reasonable amount.
If Fred incurred food or drink expenditure that was less than or equal to the Commissioner's reasonable amount, he would not be required to substantiate his food or drink expenditure - the Commissioner's reasonable amount is taken to be his food or drink expenditure.

Timeframes for keeping and receiving records

Keeping and receiving records

If...

Then...

Your employee gives you a declaration about living away from home

You must keep the declaration for five years from the date they must give you the declaration.

Your employee gives you a declaration about their accommodation, food or drink (or a combination of these)

You must keep the declaration for five years from the date they must give you the declaration.

Your employee must keep the relevant documentary evidence of their expenses for five years from the date they must give you the declaration.

Your employee gives you documentary evidence of their expenses (such as receipts, a copy of credit card statements or bank statements), instead of a declaration about these expenses

You must keep the documents for five years from the date they would otherwise be required to give you the declaration.

11.12 Difference between a living-away-from-home allowance and a travelling allowance

It is important to determine whether an allowance paid by you to your employee is a LAFHA or a travelling allowance, because they have different tax treatments. LAFHAs are a fringe benefit, whereas travelling allowances are part of the employee's assessable income and are not fringe benefits.

The following table sets out some of the indicators of whether the allowance is a LAFHA or travelling allowance:

Living-away-from-home allowances

Travelling allowances

This is paid where an employee has taken up temporary residence away from their usual place of residence in order to carry out duties at a new, but temporary, workplace.

This is paid because an employee is travelling in the course of performing their job.

There is a change of job location in relation to paying the allowance.

There is no change of job location in relation to paying the allowance.

Where an employee is living away from home, it is more common for that employee to be accompanied by their spouse and family.

Where an employee is travelling, they are generally not accompanied by their spouse and family.

They are paid for longer periods.

They are paid for short periods.

The indicators above are guidelines only and no single indicator determines the nature of the allowance received - for example, a travelling allowance might be paid to a commercial traveller, or travelling entertainer almost continuously, whereas another employee may receive a LAFHA for only a month or so.

There may be circumstances when an employee is away from their home base for a brief period in which it may be difficult to determine whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days, the allowance will be treated as a travelling allowance rather than a LAFHA.

11.13 Other living-away-from-home fringe benefits

Rather than paying a cash LAFHA while an employee is required to live away from their usual home, you may provide accommodation and/or food for the employee. Alternatively, you may reimburse the employee for these expenses. In these instances, although the benefits must be valued by reference to the valuation rule for the particular type of benefit, the tax liability is essentially the same. The following reduction and exemption may apply in these circumstances:

  • living-away-from-home - food provided (refer to section  19.4 of Reductions in fringe benefit taxable value)
  • living-away-from-home - accommodation (refer to section  20.4 of Fringe benefits tax exempt benefits).

See also:

  • TR 92/15 - Income tax and fringe benefits tax: the difference between an allowance and a reimbursement.
  • TD 2012/5 - Fringe benefits tax: for the purposes of Division 7 of Part III of the Fringe Benefits Tax Assessment Act 1986 , what amount represents a reasonable food component of a living-away-from-home allowance for expatriate employees for the fringe benefits tax year commencing on 1 April 2012?
  • TD 2013/4 - Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food or drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit, for the fringe benefits tax year commencing on 1 April 2013.

ATO references:
NO Fringe benefits tax - a guide for employers

SAV/FBTGEMP history
  Date: Version:
  30 March 1997 Original document
  13 December 2013 Updated document
  1 July 2014 Updated document
  7 December 2016 Updated document
  22 May 2017 Updated document
  11 July 2017 Updated document
  17 August 2017 Updated document
  4 September 2017 Updated document
  11 April 2018 Updated document
  9 June 2018 Updated document
You are here 13 July 2018 Current document
Chapters 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , and 21 have been updated. See the Changes and updates sections in the relevant chapters for details.

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