Lafha

[Guest sam2500]

Hi all,

Just wondering if anyone gone on temporary sponsored visa ( 457 ) or other, and been able to claim Living Away From Home Allowance ( LAFHA ).

Not sure what this entails so any information would be appreciated.

Thanks a lot,

Sue David and Sam.

[Andrew from Vista Financial]

Sorry guys,

 

can't help ypu on this one. However if you check out the Go Matilda forum, there is a lot of info on it about LAFHA

 

Regards

 

Andy

[Guest Ian Lindgren]

Hi all,

Just wondering if anyone gone on temporary sponsored visa ( 457 ) or other, and been able to claim Living Away From Home Allowance ( LAFHA ).

Not sure what this entails so any information would be appreciated.

Thanks a lot,

Sue David and Sam.

 

Hi Sue David and Sam,

 

I know it is a little late for a reply, but I just wanted to place a response to you, and for any other reader, so everyone has the facts at hand.

 

LAFHA can be claimed primarily by 457 Short Stay Business and 417 Working Holiday visa holders. Other subclasses may be eligible for LAFHA, and these cases, as with any case, must be considered on its merits before a determination could be made. These are classes where the individual maintains an intent to return home and is on a time limited visa.

 

In fact, the legislation does not list by Visa subclass which visas are eligible for LAFHA; it simply lists the conditions that must be met in order for an employer to find you eligible for LAFHA. It’s simply so cut and dry for 457 and 417 visa holders that in almost all circumstances, they are eligible for LAFHA.

 

You will find plenty of posts by individuals and even professionals that state this is not true, or will state that only some of the things I am about to tell you are available for those claiming LAFHA. No criticism intended at all to these guys , but the reason these posts are posted is because everyone tries to provide the most accurate advice they can, based on the LAFHA facts they can find. Believe me….finding the facts on LAFHA is hard, and for this reason most accountants, CFOs, payroll officers etc just don’t have them.

 

I’ll give you all a bit of an overview on LAFHA that doubles up on a bit of the above. Let’s look at the exciting cash in hand stuff first, and then I’ll finish with the references.

Why is it hard to find Consistent Information on LAFHA?

LAFHA is arguably the most misunderstood and underutilised allowance in Australia for three reasons:

 

• The first reason is that there is no one repository of current knowledge on the ATO web site.
  
• The second reason is that LAFHA has the word "Allowance in it". This means to most people, that they have to pay you more! When in fact your taxable salary is reduced by the LAFHA amount you claim, so there is no more for your employer to pay. They pay less tax on you, and you get in the hand what they do not pay.
  
• The other reason is that LAFHA is administered under the Fringe Benefits Tax (FBT) Act, and because people (including accountants, CFOs and payroll officers do not know all there is to know about LAFHA), they automatically take a defensive stance and say "No to LAFHA" because they think it attracts FBT. It does not as long as it is paid correctly.
  

LAFHA can continue for the whole 4 years you are on a 457 visa, so long as you intend to return home. The moment you decided not to return home and apply for PR, LAFHA must stop.

 

The Main Components of LAFHA

The two main components of LAFHA are:

• The Accommodation Component. The accommodation component is exempt from FBT where it is “reasonable” to conclude that the nature of the accommodation is such that the costs are those that the employee could reasonably be expected to incur. It is usually paid to the amount of an accommodation lease.
  
• The Food Component. The food component is paid exempt from FBT when it is paid to the amounts published by the ATO each new FBT year.
  

Other Claimable Items

 

The other claimable items are:

 

Temporary Accommodation and Food Allowance at the Home Location. Up to 7 days.

Storage of Furniture. Should an employee need to store furniture while working in Australia, the cost of that storage can be deducted from their taxable income on presentation of receipts.

Removal Costs. The costs associated with removal, packing, unpacking and insurance of household effects can be claimed in on presentation of receipts.

Cost of Travel. The cost of economy travel to Australia for foreign citizens, or within Australia for Australian citizens, for the employee and all dependents. This includes all costs associated with that travel such as taxis, accommodation and meals.

Temporary Accommodation and Food Allowance at new Location. Up to 21 days.

Utilities Reconnection. The connection of gas, electricity and telephone services to the new home may be claimed presentation of receipts so long as it can be proved that those services were connected at the home locality.

Cost of Travel home at the end of the temporary Employment. The cost of economy travel to return home for the employee/contractor and all dependents.

Foreign Citizens Only - Returning home while still temporarily residing in Australia. An employee/contractor may return home any number of times a year, and subject to supplying receipts, claim 50% of the cost of travel for the employee/contractor and each of their dependents. This includes all costs associated with that travel such as taxis, accommodation and meals to and from the location.

Foreign Citizens Only – Schooling. Children’s’ education expenses can be included in LAFHA for the tuition fees paid to an educational institution or tutor for full time education.

 

The key items that you must remember about LAFHA are that:

• It is not en entitlement; it is only paid if your employer agrees to pay it, and to agree to pay it, your employer and his/her financial advisers must know the facts on LAFHA.
  
• Each case must be considered on its own merits
  
• You must intend to return home
  
• Your accommodation costs must be “reasonable”, ie not a penthouse unless you are on $300,000 per year and a senior employee, but also not a hovel!
  
• Your meals costs are fixed by the ATO each year on 1 April. See http://law.ato.gov.au/atolaw/view.htm?docid=%22TXD/TD20114/NAT/ATO/00001%22 for FBT Year 1 April 2011 to 31 March 2012.
  
• Never let anyone tell you to claim anything that is blatantly illegal or double dipping; You’ve got to ask yourself, hand on heart, if I was questioned by the ATO, could I win because I was truthful?
  
• Never let anyone contact your employer about providing you with LAFHA. That will get your employer off side, so always control the communications yourself.
  
• LAFHA is usually worth about $10,000 - $15000/year to you additional cash in hand for accommodation and food components. It does not cost your employer any more money, and does not attract Fringe Benefits Tax is paid correctly.
  
• What is LAFHA Worth to Me?
  

If you would like to know roughly what your cash in hand would increase by considering the accommodation and food components only, see this LAFHA Calculator. This underestimates it for most people because it is based on a rental of $350 per week.

 

The Primary References

The primary reference is the ATO FBT Guide for Businesses Chapter 11 at http://law.ato.gov.au/atolaw/view.htm?docid=SAV/FBTGEMP3/00012.

 

This is supported by the Miscellaneous Taxation Ruling MT 2030 which aids integration and application at http://law.ato.gov.au/atolaw/view.htm?locid='MTR/MT2030/NAT/ATO.

 

Additional information on the food component is available each FBT year and for FY 11/12 at http://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD20114%2FNAT%2FATO%2F00001%22. This reference is entitled reasonable food component for expatriate employees living away from home however there is no specific guide for Australian citizens, and the ATO considers this reference as the benchmark maximum for Australian citizens before FBT should be applied.

 

The final reference is “Avoiding Common Errors on the Payment Summary” at http://www.ato.gov.au/corporate/content.asp?doc=/content/18704.htm&page=3 where it states “Do not include living away-from-home allowance at allowances on the Payment Summary”. If LAFHA is included on the payment summary the employee will lose all benefits and be required to pay tax on the allowance.

 

I hope that has assisted.

 

Regards,

 

Ian