Do your employees travel for work? The ATO has issued new guidance to help employers determine whether to pay employees a travel allowance
or a living-away-from-home allowance (LAFHA).
There are some key differences between the treatment of the two types of payments:
LAFHAs are paid where an employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able
to carry out their job at the new but temporary workplace. The employee has a clear intention/expectation of returning home on the
cessation of work at the temporary location (in this sense, the employee is absent for a limited/finite period of time).
On the other hand, a travel allowance is paid for specific trips because the employee is travelling in the course of performing their employment duties but has not temporarily relocated as a LAFHA recipient would. The existing work location continues to be the employee’s regular place of work. In travelling away from home, the employee simply takes travel items (such as toiletries and a few changes of clothes). Employees receiving a travel allowance will also typically use temporary styles of accommodation such as hotels.
A travel allowance provided by an employer is not taxed under the FBT regime but may be taxed under the PAYG withholding regime as a supplement to salary and wages. The ATO publishes guidelines each year on what it considers to be reasonable amounts for a travelling employee, and take the following factors into consideration:
Countries other than Australia are split into “cost groups”, with each determining the reasonable amount of the daily allowance. These are determined based on the cost of living in that country and then numbered between cost groups one to six. Cost group one has the lowest daily allowance and cost group six has the highest.
The reasonable amounts are intended to apply to each full day of travel covered by the travel allowance, with no apportionment required for the first and last day of travel.
Where the employer has paid the employee less than the ATO-determined reasonable amount, then the employer is not obligated to withhold from the allowance nor does the employer have to include the allowance on the employee’s PAYG income statement.
Key differences between the two types of payments are captured in the table below..
Ultimately, allowances for travel are a handy employee retention tool – helping them cover the costs of workrelated expenses they may incur while travelling on or relocating for business. Speak with your advisor if you are uncertain about their taxation treatment.
If you have any questions, please reach out to your local Forsyths office on 1300 447 007.
|The existing work location continues to be the employee’s regular place of work||The employee has established a second or alternative work location.|
|The employee simply takes travel items with them (e.g. toiletries, change of clothes)||The employee effectively takes up temporary residence away from what is considered their usual place of residence, and may take residential belongings with them|
|The employee (and their family) continues to reside near the existing work location||The employee has temporarily relocated, and their family may also have joined them or visit them|
|The employee uses temporary styles of accommodation such as a hotel||The employee uses longer-term accommodation while away from home e.g. lease of residential premises|
|The employee is away on a specific trip for less than a month or so||The employee is staying away to work at an alternative work location for a significant period, generally more than one month|