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What living away from home means for your taxes

Australian currency and the ATO logo to represent to allowance you can claim for living away from home.
You could get a living away from home allowance if your employer requires you to work away from home. (Source: Getty)

When it comes to your taxes, you generally can’t claim a deduction for any expenses incurred when you are living away from home as these costs are considered private expenses by the Australian Taxation Office (ATO).

But, in some cases, your employer may compensate you for any expenses incurred - such as accommodation or meals - whilst you are working away on secondment or on a contract. This is called a living-away-from-home allowance (LAFHA).

Read more from Mark Chapman:

LAFHA’s apply to situations where you are required to work temporarily in another location at your employer's request, with the expectation that you will return to your usual home at the end of the contract or secondment.

A LAFHA can take several forms:

  • The payment of an allowance to you by your employer

  • The reimbursement of expenses which you incur by your employer

  • The direct provision of a benefit by your employer, for example the provision of living accommodation for you whilst you are away

You can also receive LAFHA or a benefit in respect of family members that also live away with you, including your spouse and your children.

Tax implications of LAFHA’s

A LAFHA paid to you is income tax-free and should not be included as assessable income in your tax return.

That also means you cannot claim a deduction for expenses which have been covered by a LAFHA.

Instead, your employer may be required to pay Fringe Benefits Tax (FBT) on the value of the allowance or benefits provided.

But here’s where it might get confusing.

LAFHA’s are often confused with travel allowances.

Travel allowances are taxable and you can usually claim deductions against them if the travel meets certain criteria, for example, you must travel and stay away from home overnight in the course of your job.

Travel allowances are paid to employees that are travelling on business but not living away from home. Generally, an employee travelling for business for less than 21 days continuously and less than 90 days in total to the same work location will receive a travel allowance, not a LAFHA.

If you maintain a home in Australia that your duties of employment require you to live away from, your employer can only receive the concessional treatment for any living-away-from-home benefits they provide to you for 12 months.

After that period, your employer will have to pay FBT on any benefits they provide to you.

Tax and LAFHA: Keeping records of expenses is vital

You must keep records of your expenses and will need to give your employer either:

  • documentary evidence of the expense such as receipts, credit card or bank statements (copies are acceptable)

  • a declaration setting out information about the expense

If you choose to provide a declaration to your employer, you must do so by the date your employer's FBT return is due to be lodged with the ATO, or, if they don't have to lodge a return, by May 21.

You must also keep five years’ worth of your documents to substantiate the expenses.

However, you do not need to keep the documents if you provide documentary evidence of the expense to your employer.

What about food or drink expenses?

You only need to give evidence of food or drink expenses incurred while living away from home when they exceed an amount considered reasonable by the Commissioner.

If your food or drink expenses exceed the reasonable amount, you need to have evidence of the full amount of these expenses, not just the excess amount.

What about accommodation expenses?

You need to give evidence of the full amount of accommodation expenses incurred.

Help! I don’t know if I’m getting LAFHA or not

If you’re uncertain about whether allowances you are receiving are LAFHA or not, or if you need guidance on the records you need to keep, speak to your tax accountant.

If you're uncertain about whether allowances you are receiving are LAFHA or not, or if you need guidance on the records you need to keep, visit one of the H&R Block offices and get advice from one of our expert tax consultants. Call 13 23 25 or find your nearest office.

Mark Chapman is director of tax communications at H&R Block.

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