A Living Away from Home Allowance (LAFHA) is paid to an employee that their employer requires to live and work away from their usual home for months at a time. But the allowance is often misunderstood.
It is complicated. Of course it is, it involves tax legislation and the Australian Tax Office (ATO). If someone gets the process wrong or misses a step, the Fringe Benefits Tax (FBT) can wipe the benefit of the payment out.
Living Away From Home Allowance explained
People can mistake it as a travel allowance or extra pay but it is not taxed the same way as these. It is also not a perk or a bonus for relocating. The LAFHA is an additional payment the employer pays to an employee to cover their extra accommodation and food costs when they need to live away from their normal residence for work.
So, it is important that employers and employees understand the LAFHA’s complexities to ensure they maximise its benefits and comply with tax laws.
Two main parts to the allowance
There are two main parts to LAFHA:
1. Accommodation expenses. Because an employee is working away from home, they have additional expenses to pay for their accommodation because they are still paying for their usual residence. The additional expenses must be reasonable and the actual amount the employee pays, and it is exempt from FBT.
2. Food and drink expenses. This pays for the additional reasonable food and drink expenses incurred by the employee while working away from home. The ATO publishes what it considers to be reasonable food expenses every year. The following are examples from the ATO’s weekly amounts for 2026:
a. One adult - $341
b. Two adults - $512
c. One adult and one child - $427
For 2027 the equivalent example amounts are:
a. One adult - $353
b. Two adults - $530
c. One adult and one child - $442
Note that because LAFHA is Covered by the Fringe Benefits Tax (FBT) regime, these years are FBT years. The 2026 year started on 1 April 2025 and finished on 31 March 2026 while the 2027 FBT year started on 1 April 2026 and finishes on 31 March 2027.
What makes an employee eligible?
To be eligible for LAFHA, an employee must meet the following criteria:
1. Must live away from normal residence. An employer may need an employee to work away from home from a place that is too far for an employee to commute from daily. The employer must require the employee to work away from home. It cannot be an employee’s personal choice.
2. It must be temporary. The relocation must be temporary for up to 12 months. If it is not a temporary relocation, the LAFHA will not apply.
3. Must still maintain usual residence. The employee must maintain their normal residence during the time they are working away from home. This means that the employee can return home at any time and on completion of their temporary work assignment. This also means the home is not rented out. It is either vacant or lived in by other family members as normal.
4. Provide employer with a declaration. An employee must provide their employer with a declaration that they will maintain their normal residence while working away from home and their intention to return home. This gives the employer the paperwork to establish they are paying a LAFHA and to apply to the ATO for the correct FBT treatment.
5. Provides evidence. The employee provides evidence of accommodation costs and food expenses while living away from home.
6. Know your tax obligations. While the accommodation and food and drink costs may be exempt from FBT, anything above the ATO’s published amounts may require tax paid on the excess amount. It would be wise to consult either your employer or your accountant to understand your tax obligations when receiving the LAFHA.
If workers are drive-in drive-out or fly-in fly-out, this is a different situation and does not qualify for the LAFHA. Always get advice about which tax rules apply. Do not make assumptions.
Difference between the living away from home and travel allowances
People often confuse the LAFHA with the travel allowance. They are certainly similar in that they both paid to employees working away from their normal workplace and home. But how each allowance is taxed is different:
1. An employee receives the LAFHA when they cannot live in their usual residence when working at a different workplace, usually for several months at a time. The ATO treats it as the employer paying a fringe benefit. However, there are parts of the payments that are exempt from FBT, and not considered part of an employee’s income.
2. An employee receives a travel allowance when travelling for work purposes but is not living away from their normal residence. For example, an employee staying interstate for two nights to attend a conference and then returns home. It becomes part of an employee’s assessable income, PAYG withholding generally applies and the employer can claim a travel allowance as a tax deduction.
To decide whether an employee should receive a travel allowance or LAFHA, consider the following:
1. If an employee needs a short-term lease of a room or an apartment for up to several months in Port Augusta while they maintain their home base in Melbourne, then they need the LAFHA.
2. If the employee has to work away from home for several weeks but comes home on weekends, it is most likely a travel allowance they receive.
How the tax office treats the allowance
The LAFHA is part of the Fringe Benefits Tax Assessment Act and the following applies:
1. The employer pays the LAFHA—it does not go through payroll as wages. It is also not subjected to PAYG or part of an employee’s gross wages.
2. The taxable amount of the LAFHA is the total the employer pays less the exempt food and accommodation amounts.
3. The tax exempt accommodation part must be substantiated by the employee with either receipts or a lease.
4. The tax exempt food part of the allowance is the reasonable food and drink costs less the ATO’s statutory amount. The statutory amount is currently $42 for an adult and $21 for a child a week.
5. If there is any remaining amount that attracts the FBT, then the employer pays the tax which is currently 47%. Obviously, the idea is to keep the LAFHA under the level where FBT becomes payable.
Give Ben a call for advice before setting up a LAFHA. He can help structure it so the employee receives the maximum allowance without paying tax and the employer does not pay FBT.
In conclusion
It is important for both employers and employees to understand the LAFHA to maximise its benefits and comply with the tax laws. The LAFHA gives employees who need to live away from their normal home for work financial relief. It covers accommodation and food and drink expenses. But you need to know what the tax implications are, the changes to the regulations, and the eligibility requirements so there are no surprise tax liabilities.
Seek professional advice so you know what the latest FBT rules are and keep good records. If employees do this, they can maximise the entitlements of their LAFHA. Employers should apply exemptions correctly and ensure their recordkeeping is accurate so they comply with the relevant tax laws.
Australian tax laws continually change, so staying up to date with the ATO guidelines will help businesses stay compliant while they benefit from the LAFHA.