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ATO targets employers over living-away-from-home allowances

The ATO is stepping up efforts to target rorting of tax-free living-away-from-home allowances, amid fears employers and employees are using contrived arrangements to get a tax-free salary boost. Fringe benefits tax rules allow employers to pay tax-free LAFM allowances to employees whose work requires them to temporarily relocate from their home. The allowances, which are […]

The ATO is stepping up efforts to target rorting of tax-free living-away-from-home allowances, amid fears employers and employees are using contrived arrangements to get a tax-free salary boost.

Fringe benefits tax rules allow employers to pay tax-free LAFM allowances to employees whose work requires them to temporarily relocate from their home. The allowances, which are generally tax free, cover food and accommodation.

However, in the last few months the ATO has been writing to employers who provide large LAFM allowances to staff to review their arrangements.

In some cases it has been found that LAFH allowances can account for 90% of a worker’s total remuneration.

Yasser El-Ansary, senior tax counsel at the Institute of Chartered Accountants, says the targeted initiative is not surprising.

“The ATO seems to be targeting those employers who they believe may have been pushing the boundaries on tax-free allowances. It’s not an across the board initiative, it’s been quite targeted,” he says.

El-Ansary says employers and employees have tried to “push the boundaries” around LAFM allowances.

“The point is whether or not the arrangements have been entered into do comply with the law. If they do comply with the law, the ATO will look further at whether those arrangements are artificial or contrived.”

Deloitte partner Frank Klasic told SmartCompany that employers need to be extra careful about calculating payments.

“This is being looked at very carefully, and in fact there is a survey going out about the allowance, and specifically about the structure of payments and if they are complying with FBT rules.”

Klasic says employers need to check with the Tax Office and make sure allowances are being paid within the right rates and thresholds, as they change every year.

“You need to make sure you are updated for the new thresholds so you don’t underpay your allowance.”