The Australian Taxation Office considers living-away-from-home allowance (LAFHA) a fringe benefit. While living-away-from-home allowances are more common for employees, contractors may also be eligible for them, especially if they have to live at a location or travel to work. The LAFHA covers their additional expenses and any disadvantages they may have suffered moving away from their residence to perform their contractual duties.
It’s important to note that LAFHA doesn’t reimburse you for every dollar spent. Instead, it’ll reduce your taxable income, assisting with food, accommodation, and travel costs. It’s also not an entitlement. Instead, you’ll be assessed to be eligible for it. Most contractors generally partner with a payroll management company that pays them LAFHA on their client’s behalf.
Chapter 11 of the Fringe Benefits Tax Act of 1986 classifies LAFHA as a fringe benefits tax. As a result, the ATO scrutinises all aspects of the allowance.
Are You Eligible for LAFHA?
Contractors are generally eligible for LAFHA if they meet the following requirements:
Their contractual obligations require them to live away from their registered residence for over 21 days.
Contractors own a home in Australia. They must reside in this home regularly and maintain an ownership interest.
Their usual residence must remain available for use when they’re on LAFHA.
Contractors can provide a LAFHA declaration.
What Can You Claim Under LAFHA?
LAFHA generally comprises three components, including the following:
Accommodation
You’ll need to pass the ATO test for the accommodation component for it to be reasonable. For instance, if a contractor’s usual residence is a one-bedroom apartment and they lease a one-bedroom apartment for the duration of their contract, it would be considered reasonable.
Food
The ATO sets a reasonable food component sum for every year as part of your LAFHA. For 2022, ATO has set the food and drinks amount to $289 per week for a single adult. This figure rises to $434 for two adults and $579 for three adults.
Relocation Expenses
Contractors can have their relocation expenses paid as LAFHA. It applies if the relocation expenses assist with removal, storage, packing, unpacking, and household insurance when relocating to or from their usual residence to a temporary location.
Get Started with Achieve Corp
Are you a contractor looking to partner with a payroll management company to pay LAFHA on your client’s behalf? Consider leaving your payroll processing to payroll management and processing companies. Achieve Corp can help with salary packaging as an independent contractor.
If you’re looking for assistance with payroll management and tax minimisation, count on Achieve Corp for comprehensive solutions. The company is one of the top-rated Australian payroll service providers and specialises in payroll services for contractors.
The team at Achieve Corp has the experience and capabilities to meet each contractor’s unique needs. It doesn’t matter whether you’re an IT or an independent contractor. We’ve got you covered. We have over 18 years of experience and have cemented ourselves as a leading payroll services provider for contractors. Contact us today to find out how they can help you.
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