If you have ever been asked to work in a different city for months at a time — or if you employ someone who has — you have probably bumped into LAFHA. And almost certainly heard three different opinions about how it works.

LAFHA (Living Away From Home Allowance) is one of the most misunderstood payments in Australian payroll. It looks like a travel allowance, it sounds like extra salary, and it is taxed like neither. Get the treatment wrong and you can sit on a Fringe Benefits Tax (FBT) bill that wipes out the whole benefit.

This guide explains who actually qualifies for LAFHA in 2026, how the FBT rules work in plain English, what employees need to substantiate, and the mistakes our team at Trinity Accounting Practice sees most often. If you want this checked against your own situation, our accounting and advisory team in Beverly Hills, Sydney can walk you through it.

What Is LAFHA? A Plain-English Definition

A Living Away From Home Allowance is a payment made by an employer to an employee to compensate for the additional accommodation and food or drink costs the employee reasonably incurs because their job requires them to live away from their usual place of residence.

The key word is additional. LAFHA is not a wage top-up, a relocation bonus, or a perk. It is meant to cover the genuine extra cost of being temporarily based somewhere other than home — and the Australian Taxation Office (ATO) treats it as a fringe benefit under the FBT regime, not as ordinary income.

This is the single most important thing to understand: LAFHA is a fringe benefit, not salary. That distinction drives the entire tax treatment.

LAFHA vs Travel Allowance: They Are Not the Same

This is where most of the confusion starts. Travel allowance and LAFHA look similar — both involve an employee working somewhere other than their normal workplace — but they are taxed completely differently.

Travel allowance is paid to an employee who is travelling in the course of their job but is not living away from home. Think of a sales rep doing a three-night interstate trip. The allowance is assessable income to the employee, the employer claims it as a deduction, and PAYG withholding generally applies (unless a reasonable amount applies). Substantiation is on the employee’s tax return.
LAFHA is paid when the employee is required to live away from their usual residence, typically for an extended period. It is treated as a fringe benefit on the employer side. The “exempt” portion (genuine accommodation plus reasonable food costs above a statutory amount) is not subject to FBT, and is not assessable income to the employee.

Rule of thumb we use with clients: if the assignment is days or a couple of weeks and the employee keeps coming home on weekends, it is almost certainly a travel allowance. If the employee has packed up and taken a short-term apartment for several months while keeping their home back in Sydney, you are in LAFHA territory.

Who Is Eligible for LAFHA?

For a payment to qualify as an exempt LAFHA fringe benefit, the employee generally needs to meet all of the following conditions:

They maintain a usual place of residence in Australia that is available for their use throughout the period. This means not renting it out, not leaving it vacant indefinitely — it must remain their home.
They are required to live away from that residence because of their employment duties. The need must come from the job, not personal preference.
The arrangement is temporary. The ATO concession generally applies for a maximum of 12 months at any one work location for the same employer (with limited extension rules).
The employee gives the employer a declaration covering the relevant FBT year, stating they are maintaining a home in Australia they intend to return to.
The employee substantiates accommodation expenses (and food expenses, unless within the ATO’s reasonable amounts).

Workers who are fly-in fly-out (FIFO) or drive-in drive-out (DIDO) operate under separate exemption rules and are often confused with LAFHA. They are different — get advice before assuming one set of rules applies.

How LAFHA Is Taxed: The FBT Treatment in Practice

LAFHA sits under the Fringe Benefits Tax Assessment Act. The mechanics in plain English:

The employer pays the allowance. It is not run through ordinary payroll as salary or wages — it does not attract PAYG withholding and is not reported as gross wages.
The taxable value of the LAFHA fringe benefit is calculated. Generally, the taxable value is the total allowance paid less the exempt accommodation component less the exempt food component.
The exempt accommodation component equals the actual accommodation expenses the employee reasonably incurs (substantiated by receipts or a lease).
The exempt food component equals the reasonable food and drink costs less a statutory amount (the ATO publishes this each FBT year). The statutory amount represents what the employee would have spent on food at home anyway.
Any remaining taxable value attracts FBT at the rate applicable for the FBT year (47% as at the 2025–26 FBT year). The employer pays the FBT — not the employee.

Done correctly, a well-structured LAFHA results in zero FBT payable and the employee receives the full allowance tax-free. Done incorrectly, the employer can be hit with an FBT bill that effectively doubles the gross cost of the allowance.

A worked example

Sarah is a project engineer based in Sydney. Her employer asks her to manage a 9-month installation in Brisbane. She rents out a room in a serviced apartment for $650 per week ($28,166 over 9 months) and spends roughly $260 per week on food while in Brisbane. She keeps her Sydney apartment, where her partner still lives.

Total LAFHA paid over 9 months: $50,000
Substantiated accommodation: $28,166 → fully exempt
Reasonable food cost less statutory amount: assume $11,000 exempt
Remaining taxable LAFHA fringe benefit: roughly $10,834

If the employer wanted a fully exempt outcome, they would size the LAFHA so it does not exceed accommodation plus the exempt food amount. Anything paid above that is genuinely an FBT-bearing benefit and should be priced into the assignment accordingly.

What Employees Need to Substantiate

The substantiation rules are the part that trips most employees up. To support the exempt treatment, employees generally need:

Accommodation receipts or a lease agreement for the entire LAFHA period.
Food receipts if their food allowance exceeds the ATO’s published reasonable amounts for the FBT year. If they stay at or under the reasonable amounts, full food substantiation is not required (a written declaration covers it).
A signed LAFHA declaration given to the employer before the employer’s FBT return is lodged. The declaration confirms the employee maintains a home in Australia, the address of the temporary residence, and the dates of the LAFHA period.

Keep these records together. If the ATO asks the employer to support the LAFHA treatment two years after the fact, the substantiation needs to be retrievable.

The Most Common LAFHA Mistakes We See

After 22 years of advising Australian employers, the same handful of mistakes come up again and again:

Treating LAFHA as a tax-free wage. It is not. It must compensate for genuine additional accommodation and food costs. Pay too much, and the excess becomes a taxable fringe benefit.
Paying LAFHA to an employee who does not maintain a home in Australia. The exempt concession requires a home the employee intends to return to. Without it, the LAFHA is fully taxable as a fringe benefit.
Confusing LAFHA with relocation costs. If the employee is moving permanently, the right framework is the relocation exemption, not LAFHA.
Running LAFHA past the 12-month mark without considering whether the concession still applies. Long-term arrangements often need restructuring.
Missing the annual employee declaration. Without a signed declaration in the employer’s records, the ATO can refuse the exempt treatment on review.
Reporting LAFHA as salary on the payment summary / STP report. It is a fringe benefit. It belongs on the FBT return, not the income statement (subject to reportable fringe benefit thresholds).

A Trinity insight from 22 years in practice

The single most expensive LAFHA error we have unwound for a client was treating a 14-month interstate posting as fully exempt because “it always has been.” It hadn’t always been — the rules tightened in 2012 and again in subsequent years. The retrospective FBT exposure plus general interest charges was substantial. If your business is still using a LAFHA template that pre-dates 2012, throw it out and rebuild it.

LAFHA and Payroll Reporting (STP Phase 2)

Under Single Touch Payroll Phase 2, LAFHA is reported separately from ordinary salary and wages. Exempt LAFHA is generally not reported as gross wages but is reported as an allowance type with the correct sub-type so the ATO can reconcile it. Get your payroll software (Xero, MYOB, KeyPay, etc.) configured correctly from day one — re-categorising payments after the fact is painful.

What This Means for You

If you are an employer sending staff to work in another city or region for several months: do not assume your payroll software handles LAFHA correctly out of the box. Get the allowance structure, the substantiation file, and the FBT return treatment reviewed before the first payment.
If you are an employee being offered a LAFHA arrangement: ask for the policy in writing, keep every accommodation and food receipt, sign the declaration on time, and check that your home in Australia genuinely remains available for your use.
If you are mid-assignment and unsure whether the treatment is correct: it is much cheaper to fix now than to defend on an FBT review later.

How Trinity Can Help

Trinity Accounting Practice has been advising NSW employers on LAFHA, FBT and complex payroll arrangements since 2003. We can structure new LAFHA arrangements, review existing ones, calculate the exempt and taxable components for your FBT return, and train your payroll team on STP Phase 2 categorisation. We work with mainland-Australian employers across Sydney, regional NSW, and Australia-wide via our cloud-first virtual CFO and accounting service.

Book a 20-minute LAFHA review with the Trinity team →

General advice only. This article contains general information current as at May 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives, or needs. FBT and LAFHA rules change — always verify current rates and reasonable amounts on ato.gov.au. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser.