Moving for work can create a real financial strain, particularly where an employee needs to pay for a second home, higher food costs or other practical necessities while keeping an established home elsewhere. A living-away-from-home allowance, commonly called LAFHA, can help manage those costs in a tax-effective way, but it is not an automatic entitlement and it is not simply another name for a travel allowance.
For employees, the key question is whether the arrangement genuinely involves living away from a normal residence because employment duties require it. For employers, including small businesses, the challenge is to structure, document and review the arrangement properly so that FBT exposure is understood rather than discovered later.
What a LAFHA is, and why the distinction matters
A LAFHA is an allowance paid by an employer to compensate an employee for additional non-deductible living expenses, or for those expenses plus other disadvantages, arising because the employee must live away from their normal residence to perform their job.
It is a fringe benefit rather than ordinary salary and wages. In practical terms, that means the employer, not the employee, is responsible for considering the FBT treatment. When the relevant conditions are met, the taxable value of the benefit may be reduced by eligible accommodation and food components.
This can be valuable, but the tax result should not drive the facts. A LAFHA arrangement must reflect the employee’s real working and living circumstances. Calling an allowance “LAFHA” in an employment contract or payroll system is not enough on its own.
A proper arrangement commonly involves an employee who has an established home in one location and is required to live in another location for work. Examples may include a project manager sent to a different city for a defined assignment, a specialist temporarily relocated to support a new branch, or an employee working at a remote location under a rotational arrangement.
The central idea is additional living costs caused by the work requirement. It is not a concession for ordinary commuting, personal lifestyle choices or choosing to live closer to a regular workplace.
LAFHA versus a travel allowance: the issue to get right first
The distinction between travelling for work and living away from home is one of the most important parts of any LAFHA assessment.
An employee who is travelling in the course of performing their duties may receive a travel allowance. In that situation, accommodation, meals and incidental expenses may potentially be dealt with under the ordinary income-tax rules for work travel, depending on the facts and record-keeping requirements.
By contrast, an employee who has taken up residence at, or near, a work location may be living away from home. Their accommodation and meals are generally treated as private living costs rather than deductible work expenses. A LAFHA may then be relevant because it is designed to recognise the additional non-deductible costs of maintaining a work-related second residence.
There is no single factor that decides the issue. The overall facts matter, including:
- the expected length and nature of the work arrangement
- whether the employee has established temporary accommodation at the work location
- whether the employee is carrying out duties while moving between locations, or instead reporting to a work location as their temporary base
- whether family members move with the employee
- whether the employee retains and intends to return to an established home
- whether the work location has effectively become the employee’s new regular place of residence.
A short overnight trip for meetings is very different from an employee relocating to another city for an extended project. Equally, an arrangement that starts as temporary can change over time. Employers should revisit the classification where a project is extended, an employee changes roles, or their family and housing circumstances change.
The Australian-home and return-home requirements
For many employees, the concessional LAFHA treatment depends on maintaining a qualifying home in Australia.
The employee, or their spouse, must have an ownership interest in the Australian home. The home must remain available for the employee’s immediate use and enjoyment while they are required to live away from it. There must also be a reasonable expectation that the employee will resume living there when the relevant work period ends.
These conditions deserve close attention. It is not enough to have once lived at an address or to nominate a family member’s home as a permanent address. The employee’s connection with the property, the availability of the property and the intention to return should be supported by the facts.
For example, difficulties can arise where the former home is leased to unrelated tenants and is not available for the employee to move back into. Similarly, an employee who sells their established home, settles their family permanently at the new location or has no genuine intention to return may no longer fit the usual LAFHA framework.
The rules also distinguish genuine fly-in fly-out and drive-in drive-out arrangements. Employees on a regular rotational roster may be subject to separate conditions, including requirements relating to the customary nature of the arrangement, the impracticality of daily travel and the expectation of returning to their normal residence when the employment duties no longer require them to live away.
Because the facts can be nuanced, employees should not assume that every remote, site-based or interstate work arrangement receives the same treatment.
The time limit and changes in work location
For employees relying on the Australian-home pathway, concessional treatment is generally limited to the first 12 months during which employment duties require them to live away from that home.
This is not simply a calendar-year test. The legislation focuses on the period for which the employee is required to live away from their Australian home because of the duties of that employment.
A change in job title, salary, project scope or reporting line will not necessarily start a new period. Associated employers can also be treated as one employer for this purpose, which is particularly relevant for business groups and employees transferred between related entities.
However, a new period may be available where an employer later requires the employee to live at another work location and it would be unreasonable to expect them to commute there from the earlier location. This should be assessed carefully and documented at the time of the change, rather than reconstructed after the event.
Employers may also pause the relevant period in some circumstances. A pause does not mean the concession automatically continues for the period in question, so payroll and FBT records should clearly identify when an employee is living away, when they have returned home and when any benefit has been provided.
What costs can form part of a LAFHA arrangement?
A LAFHA is not designed to cover every cost of being employed away from home. The concessional calculation focuses on accommodation and food or drink costs for the employee and eligible family members.
The accommodation component relates to the reasonable compensation for accommodation expenses incurred while living away from home. Accommodation expenses need to be substantiated in full where the substantiation rules apply.
The food component is more limited than many people expect. It is intended to recognise additional food and drink costs, not the employee’s entire grocery budget. The calculation takes account of normal food expenses that the employee and eligible family members would have incurred had they remained at their normal residence.
The employee’s spouse or children may be included where they live with the employee at the temporary location and the benefit relates to them. The arrangement should reflect the actual household circumstances, rather than an assumed family composition.
It is also important not to confuse LAFHA with a reimbursement of every expense an employee incurs. Depending on how an employer provides support, accommodation or meals may give rise to different types of fringe benefits, each with its own conditions. The payroll description, employment agreement and actual method of payment should all align.
Records, declarations and practical steps for employees and employers
LAFHA arrangements are documentation-heavy. Good records are not just an administrative exercise, they are essential to supporting the intended FBT treatment.
The employee must provide the employer with an approved declaration by the required FBT declaration date. For an employee maintaining an Australian home, the declaration identifies the home, confirms the relevant home requirement is met and records the addresses where the employee lived during the relevant period.
Employees should also retain clear evidence of their actual costs. This may include:
- rental agreements, invoices and payment records for temporary accommodation
- food and drink records where substantiation is required
- evidence of the Australian home and the employee’s or spouse’s ownership interest
- evidence the home remained available for the employee’s use
- employment letters, project documents or secondment agreements explaining why the employee had to live elsewhere
- records supporting the intended return to the normal residence.
If food and drink expenses exceed the amount the Commissioner considers reasonable, the employee must substantiate the full relevant food and drink expenditure, not merely the amount above the reasonable level. Where a declaration is used instead of providing copies of documents to the employer, the employee must retain the documentary evidence for the required retention period.
A practical example
Suppose an employee normally lives in an Australian home with their family but is required by their employer to manage a temporary project in another city. The employee rents an apartment near the project site while keeping their established home available for the family’s return at the end of the assignment.
The employer may consider a LAFHA arrangement for eligible additional accommodation and food costs, provided the employee meets the relevant home, time-limit, declaration and substantiation requirements. The employer should confirm the expected duration of the project, retain the employee’s declaration, obtain appropriate evidence of accommodation costs and review the arrangement if the project is extended or the employee’s circumstances change.
If the employee instead decides to make the project city their permanent home, sells the former home or no longer expects to return there, the LAFHA position should be reassessed promptly.
Making LAFHA work without creating avoidable risk
The best LAFHA arrangements are built around the facts, not around a standard payroll label. Employees should raise the issue with their employer before signing a relocation, secondment or salary-packaging arrangement, rather than trying to address it after costs have been incurred.
Employers should use a consistent process that checks eligibility at the outset and reviews it when circumstances change. This is particularly important for small businesses that may not have dedicated FBT teams but still carry the responsibility for correct reporting and tax treatment.
A LAFHA can provide a valuable way to recognise genuine additional costs when an employee must live away from home for work. However, the potential benefit depends on the employee’s individual circumstances, the design of the arrangement and the quality of the supporting records.
This article is general information only and is not personal financial or tax advice. Before entering into or continuing a LAFHA arrangement, speak with a registered tax agent or accountant, such as, about your specific circumstances.