Living Away from Home Allowances

Many careers require employees to live away from their normal place of residence to perform their work duties. This is common with mine workers, geologists, farm workers, surveyors, engineers, etc.

Where an employee is living away from home for work purposes and going to the one work place, then any meals or accommodation costs incurred by the employee at or near their work-place are generally private and non-deductible.

For example, if an electrician lives in Perth, but works 21 days each month at the Kalgoorlie office, then their place of work is the Kalgoorlie office. This means any meals or accommodation expenses they incur in Kalgoorlie will be private and non-deductible.

The non-deductible meals and accommodation expenses can be converted into deductible expenses by having the employer pay the employee a living away from home (LAFH) allowance. This compensates them for non-deductible expenditure (meals and accommodation) incurred whilst LAFH for work purposes. To the extent that the LAFH allowance comprises reasonable compensation for accommodation costs and compensation for meals for the employee, the LAFH allowance can be FBT-exempt and tax free for the recipient employee.

Unfortunately, the LAFH allowance will only be FBT-exempt for the first 12 months of an employee’s work at a particular work location. So, if an employee is engaged in work away from home for more than 12 months at the one location, the employer will be taxed on the full amount of LAFH allowance.

There is also certain substantiation and other requirements that are needed to make an LAFH allowance FBT exempt.