Tips on living away from home

LAFHA is an allowance paid by an employer to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from their usual place of residence in order to perform their employment duties.

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.

Do you have to pay tax on the LAFHA?

• A LAFHA paid to you is income tax-free and should not be included as assessable income in your tax return. Conversely, you cannot claim a deduction for expenses which have been covered by a LAFHA. However, your employer may be required to pay Fringe Benefits Tax on the value of the allowance or benefits provided.

**The above material has been sourced from the Australian Taxation Office. For further information please visit their website