Late last year, I sent one of my employees to complete a three-month contract for one of my clients who are in Melbourne. I paid my employee an allowance for their living expenses whilst in Melbourne. Will I have to pay Fringe Benefits Tax on this allowance?
The type of allowance described is known as a living-away-from-home allowance (LAFHA) and is paid in compensation for expenses an employee incurs as a result of living away from their normal residence as part of their employment. Whist typically subject to Fringe Benefits Tax (FBT), the taxable amount of a LAFHA can be reduced by the amount your employee has spent on food and drink, provided they do not claim a deduction for it.
The taxable value of the LAFHA is the total allowance paid to the employee for the FBT year reduced by the non-deductible amount spent by the employee on food and drink, provided conditions are met.
One condition is that substantiation documents for expenses be kept, i.e. tax invoices and receipts. However, if the expenditure on food and drink is considered reasonable (according to the ATO’s guidelines), no substantiation is required. The reasonable amount for one adult’s food and drink for one week is $247 for the 2018 FBT year (this can change).
Another condition requires the employee to maintain an Australian residence which remains available for their use whilst they live away from home. To support this, your employee must provide a signed declaration detailing this, as well as their home address and the places they actually resided whilst living away from home.
The final condition requires that the allowance be provided to the employee for no more than 12 months. For more than 12 months, only the first 12 months is exempt. Separate conditions are to be satisfied for fly-in fly-out employees.
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Any information in this article has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material. While reasonable care is taken in the preparation of this information to the extent allowed by legislation, Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351, accepts no liability whatsoever for reliance on it.
One condition is that substantiation documents for expenses be kept, i.e. tax invoices and receipts.