Salary Sacrifice for Living Away From Home Allowance (LAFHA)
What is Living Away From Home Allowance ( LAFHA ) & the benefit?
If you are required to live away from your principal place of residence on a temporary basis to perform your employment requirements, certain expenses can be salary package and be exempt from Fringe Benefits Tax (FBT), where all the associated tax rule and conditions are satisfied.
Expenses may include rent, food and other incidentals incurred by employees who are living away from their usual place of residence for work related purposes constitutes a Living-Away-From-Home (“LAFH”) fringe benefit.
LAFHA comprises a regular tax-exempt amount for accommodation and for food, and where eligible, reduces the employee’s taxable income and compensates the employee for expenses incurred. It is not an allowance paid in addition to the salary applicable to the position.
What are the benefits of LAFHA?
By compensating the living away from home expenses using pre-tax arrangement, will effectively reduce taxable income and income tax.
Who is eligible for LAFHA?
An employee who moves to the new location with the intention to return to their old location at the end of the appointment would generally be treated as eligible for Living
Away From Home Allowance (LAFHA). Employees are also subject to a test that complies with a temporary arrangement and is limited to 12 months.
They must continue to have unconditional use of their primary residence whilst receiving LAFHA.
Period away from home is at least 21 days, which is required by the employer or contract.
Maximum period the allowance is payable for is 12 months.
Employee provides employer with a declaration about living away from home and, where required, a declaration on substantiation: LAFHA Declarations.
In general, declarations are required before lodgement of the employer’s FBT return, or by 21 May following the FBT year end (31 March).
What can be claimed under LAFHA?
It 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. The Accommodation Component must pass the ATO test so that it is considered to be “reasonable”.
When living away from home you can claim the reasonable cost of food and meals. Every year, the ATO sets a reasonable food component that forms a part of your LAFHA. Whizdom will use these Tax Determinations to calculate your claims.
Where an employee/contractor is required to relocate temporarily for the purposes of their employment, various FBT concessions and /or exemptions may apply to costs incurred in respect of the relocation.
The exempt FBT part of relocation expense can be salary packaged: costs of removal, storage, packing, unpacking and insurance of household effects and pets related.
Temporary accommodation at the permanent location up to 21 days if there is a valid reason that the permanent residence can not be used.
Temporary accommodation at new location limited to an occupancy period that begins 7 days before you start work at the new location and ends when you could reasonably be
expected to occupy long-term accommodation by lease; this is four weeks.
How to substantiate the expenditure?
Accommodation: all accommodation expenditure must be substantiated, either by the employee providing the relevant receipts to the employer or providing a declaration that they have retained all receipts.
Food & Drinks: for food and drink expenses that below ATO’S reasonable limits: Employee does not need to substantiate the expense.
For food and drink expenses that below exceed the ATO’s reasonable limits: the employee must provide the relevant receipts or provide a declaration to the employer that they have retained all receipts.
If the employee’s spouse and/or children accompany the employee, their expenses can also be salary packaged.
Am I eligible to claim LAFHA?
To ascertain if you situation qualifies for LAFHA we have an Eligibility Checklist that we ask you to complete. Once we have received the checklist we will let you know if you qualify for the allowance and provide you with next steps on how to set up the claim in your payroll.