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May 18 2011

Living Away from Home Allowance – LAFHA

Living Away from Home Allowance (LAFHA)

The Living Away from Home Allowance is one of the most popular searched terms for workers on the 457 Visa.

This tax benefit can be very advantageous to certain groups of Temporary Visa holders, and can make up for some of the disadvantages of that Visa class.

What is a living away from home allowance fringe benefit?

A living away from home allowance is an allowance the employer pays 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-related duties.

The term ‘additional expenses’ does not include expenses the employee would be entitled to claim as an income tax deduction.

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia (expatriate employees).

The employee would be regarded as living away from the usual place of residence provided that they intend to return there at the end of the term of the transfer.

An employee is regarded as living away from their usual place of residence if they could have continued to live at the former place if they did not have to work temporarily in a different locality.

The residence does not have to be the employee’s permanent place of residence.

Employees who move to a new locality with an intention to return to their old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

A 457 Visa holder is normally allowed to claim this allowance from the Employer, and it is the Employer who has to handle all the paperwork.

You do need to complete a declaration stating what your Usual Place of Residence is for each period, and an example of this is a PDF file located at:

Financial Benefits ?

The financial benefits vary depending on each appointment, and on how much each employer decides, and is allowed by the Tax Office, to allocate as the Tax Free payment towards living expenses.

I have seen figures where about $1,000 per month is paid Tax Free by the employer to cover allowable living costs. This will normally be deducted from your agreed total salary package.

This figure could be more, or even less, depending on individual circumstances.

eg: $100,000 per year normal salary would attract Tax/Medicare of $27,500 per year (2008/2009 rates), leaving you with $72,500 per year net.

With $1,000 per month set as LAFHA, the gross salary would become $88,000 with Tax/Medicare of $22,520 per year (2008/2009 rates), leaving you with $77,480 per year net, after adding back the LAFHA paid to you.
ie: Almost $5,000 per year better off.

How much is a reasonable figure for the Food component in a LAFHA claim

That is a question I was asked recently, and I came across some figures from the Australian Tax Office at www.law.ato.gov.au, which show that for the year ended 31 March 2008, (The FBT Tax Year period), the reasonable food component for expatriate employees living away from home was:

$206 per week for the first adult, $330 for two Adults, $370 for two adults and two children. Adults are classed as 12 years of age or older, for the full year.

HOWEVER, these figures need to be reduced by an amount that you would normally expect to pay for food at home. In 2007 this was $42 pw per adult and $21 per week per child.

2009-2010 Weekly food component for the fringe benefits tax (FBT) year commencing 1 April 2009

$221 One adult
$354 Two adults
$397 Three adults
$286 One adult and one child
$397 Two adults and one or two children
$463 Two adults and three children
$463 Three adults and one child
$529 Three adults and two children
$529 Four adults

These figures may well be different for the current tax year.

2009/10 Fringe Benefit Tax Food component figures are now available at: www.law.ato.gov.au

An example is Two adults and one or two children = $397 per week.

Applying for Permanent Residence Visa

Based on the Australian Tax Office (ATO) statement that a living away from home allowance (LAFHA) is for people who intend to return to their usual place of residence, it is logical that the LAFHA is no longer tax free from the date an application to become a Permanent Resident is made.

Refunding the LAFHA benefits

There are cases where people have claimed the LAFHA, but then the ATO do not allow the claim.

When this happens, any benefit must be repaid. I have read that changes such as selling their former home can trigger this event.

Additional Comments
    To be eligible for the LAFHA you just need to live somewhere else, and have an intention to return back to that place of abode, after the work has finished.

If an employer is looking to employ you long-term, ie: you advise that it is your intention to work with them for many years, even after your 4 year temp visa expires, then I would understand that an employer may be reluctant to effectively lie to the ATO about the intentions for the job.

But if the employer is aware that you are onlywith them for up to 4 years, then I see no reason why the employer would not assist with the LAFHA application, other than the paperwork involved, and maybe the Fringe Benefits Tax complications that they may have concerns about.

QUESTION

I have a subclass 496 visa (provisional visa to July 2012) and came over to Australia without employment. I gained employment within 7 weeks of arrival. Does anyone know if I am eligible to claim LAFHA? I wasn’t required to come to Australia, but obviously I am required to remain in Australia for my employment. My intention is to return to the UK at expiry of the provisional visa, where we still have our main residence. Any help would be much appreciated.

ANSWER

If an Australian lived where you were living before they got the same job, would they be entitled to LAFHA. If they were, then I guess you would also, but if not, then I doubt it very much.

The 496 visa is near enough a Provisional Residence Visa,I think, hence they will probably assume your intention is to become resident, and then LAFHA is not applicable.

I would suggest contacting one of the companies that do the LAFHA claims, to be on the safe side. Your employer will have to do the claim, so they will need to be sure of it themselves.

QUESTION

One thing that I can’t seem to get a clear answer on is if the LAFHA is invalidated if you buy property whilst on a 457 too?

The 457 allows you to buy property and be willing to sell when you leave, but does this cause the LAFHA to be invalid under the primary residence rule?  any help gratefully received!

ANSWER

If you purchase a property in Australia, and the tax Office deem that to be your new main residence, then you could well lose the LAFHA entitlement.

If you retain a property in the UK, then you could well be deemed to be still UK Resident, for the LAFHA purpose.

I do think you would need to get clarification from the Tax Office direct, if you will be relying on the LAFHA for financial purposes.

If you do buy a property, but keep the UK as your prime residence for this purpose, you will almost certainly pay full Capital Gains Tax on any profit from the sale of this extra residence, as it is NOT your prime place of residence.

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2 comments

  1. Kelly Wilson

    Can I purchase a sailboat – live on it under the 457 Visa [I have a permanent residence in California where my wife is living – I intend on returning].

    Can I put into the accomodation allowance the price of the boat loan and pen [slip] rental?

    1. ABCDiamond

      I am pretty sure that would need special clearance from the Tax Office. I would doubt it, but you never know. Worth trying though.

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