In Australia, it’s common for employees to undertake work-related travel or even live away from home for a period when their role requires it. However, navigating tax deductions and allowances at tax time becomes more complex when working away from home.
For example, an employee may be assigned to evaluate a prospective site for a mining operation. This operation requires on-the-spot observations and analysis that can only be accurately reported if someone is sent to the site to do the job, but this is a short-term arrangement.
A longer-term appointment may occur if a skilled employee is appointed to oversee a project in another state. Working away from home for a longer period of time may even entitle them to special allowances from their employer, such as a Living Away From Home Allowance.
Employees working away from home – “home” referring to the base office or headquarters – can claim specific tax deductions in Australia, and may receive Living Away From Home Allowance. However, claimable deductions differ between employees living away from home versus those who are carrying out work-related travel.
Understanding working away from home tax deductions for your annual tax return can be tricky. This article will help you better understand tax implications and claimable deductions for people working away from home in Australia.
Accountants such as WealthVisory can offer professional support to make tax preparation for work-away-from-home employees quick and easy, and affordable. From FIFO tax deductions to ADF tax returns, working with an experienced accountant makes all the difference.
For an in-depth guide to living away from home tax deductions, keep reading!
Living Away From Home vs Work-Related Travel: What Is the Difference?
When you’re working away from home, your company will specify whether you’ll be living away from home or if it’s considered work-related travel. Depending on which category you fall into, you may receive a Travel Allowance or Living Away From Home Allowance, and tax treatments of these two payments differ.
Living away from home requires you to live in suitable accommodation on or near your workplace, away from your typical home. Live away from home arrangements are often long-term, lasting anywhere from a few weeks to a few years. The ATO specifies that it must be longer than 21 days and less than two years, other than for FIFO or DIDO workers.
You are often entitled to a living away from home allowance (LAFHA) as extra compensation in this working arrangement to cover costs such as accommodation and meals. These payments apply in situations when you could have remained living in your home if not for a change in work requirements.
Alternatively, many people are required to travel as part of their job. Work-related travel refers to travelling from one place to another for business purposes. For example, the entire business trip may just require an overnight visit to meet a client, or it could be a prolonged overseas trip for a big conference.
Living Away From Home Allowance and Tax Deductions
‘Living away from home’ occurs when an employee has to work away from where they usually maintain a home in Australia. This is a longer-term arrangement rather than overnight travel: more than 21 days and under 12 months (other than for FIFO/DIDO workers).
In this case, it’s often practical for the company to let you live near your present place of work. As such, your employer may provide you with a Living Away From Home Allowance to assist with related expenses.
For example, you may be required to supervise a newly opened branch in another state. Or maybe the company needs you to do some long-term research that may last for several months or even years. Many FIFO and DIDO employees in Australia are also considered ‘living away from home’ arrangements. Providing an allowance for related expenses helps compensate employees for the expenses and inconvenience of being away from their usual residence.
What is a Living Away From Home Allowance?
The Living Away from Home Allowance (LAFHA) refers to an amount directly paid to a worker in a living-away-from-home arrangement. This is an allowance aimed to reimburse the expenses, rigours, and potential isolation of these work arrangements.
A LAFHA can be any of the following forms:
- A set allowance provided to you by your employer
- A reimbursement of your incurred expenses
- A direct company benefit as deemed by your employer
To qualify for a LAFHA, you need to fulfil a few requirements:
- You must have accommodation where you will return to after working
- You should provide a declaration to your employer about living away from home
- Your time away from home should be shorter than 12 months but longer than 21 days (the only exception is if you’re a Fly-In-Fly-Out [FIFO] worker)
Living Away From Home Allowance usually covers the expenses needed for food and accommodation. The general stipulation is at least $265 per week for food. Your accommodation should be similar to what you have when you’re staying in your existing home.
Here are some examples of LAFHA positions listed by the ATO:
- Construction workers living barracks or camps
- Employees living on offshore drilling rigs or oil platforms
- Workers living aboard offshore vessels
- Trainee employees who are required to live away from home to undergo training courses
Living Away From Home Allowance is considered a Fringe Benefit for tax purposes.
What Expenses Does LAFHA Cover?
LAFHA generally covers the following:
- Food and drink expenses while living away from home
- Food and drink expenses that exceed a reasonable amount provided that you’re able to substantiate the total amount of the costs, not just the excess
- Accommodation expenses
Is Living Away From Home Allowance Taxed?
The LAFHA that employers provide you is not part of your taxable income. Thus, it is generally not included as an assessable income on your tax return. You cannot claim a tax deduction for costs that a LAFHA covers.
If your employer provides you food, accommodation, and other incidental items as fringe benefits, your employer may need to pay Fringe Benefit Tax.
Tax Deductions When Living Away From Home for Work
While food and accommodation are not deductible expenses when receiving Living Away From Home Allowance, the tax deductions which apply to all employees are still claimable.
Valid tax deductible expenses include:
- Work-related travel expenses
- Uniform or protective clothing expenses
- Tools and equipment expenses
- Union fees
- Eligible licence renewal fees
- Work-related internet and phone connection fees
Read more about tax deductions for FIFO workers here.
Can I Claim Deductions for Expenses Covered By LAFHA?
Meals and accommodation costs covered by Living Away From Home Allowance are not tax-deductible. LAFHA is designed to compensate you for these meal and accommodation expenses incurred for work purposes.
The allowance can also be tax-free and Fringe Benefit Tax-exempt for your employer for the first 12 months.
What Deductions Can I Claim if I Don’t Receive a LAFHA?
If you haven’t received a Living Away From Home Allowance, and you’ve paid for your meals, accommodation, travel expenses, and other incidentals, these expenses may be tax deductible as travel expenses.
However, the majority of personal expenses are not tax deductible, even when working away from home. Transportation from your home to your workplace and food and drink costs are considered a personal expense. You will only be able to claim deductions for costs you can associate with ‘income earning activity’.
In addition, you typically cannot claim accommodation expenses as tax deductions if you’ve chosen to work away from where you typically reside.
Work-Related Travel Allowance and Tax Deductions
When it comes to work-related travel, your employer will often pay you a travel allowance. This will be in addition to the salary you regularly receive, and is included in your assessable income.
What is a Travel Allowance?
A travel allowance is a set amount of money intended to cover the cost of travel, accommodation, food, and other secondary costs arising from travelling for work or business purposes. Expenses accrued by travelling from home to your usual place of employment and vice versa are not eligible costs.
The employer will record the allowance payments and include them in your payment summary as ‘allowances’. In most cases, you are required to keep a record of your expenses.
However, there are times that you may need to shell out your own money for unexpected costs. If you have incurred such expenses while travelling overnight for business, it’s recommended that you list down the details of any food, accommodation, travel, and incidental costs for liquidation. A travel diary is recommended for everyone and is compulsory for sole traders, and partners in a partnership.
A travel diary should indicate the date of your trip, your destinations, your itinerary, the purpose of your trip, and what costs you incurred. If you can, also keep a copy of any relevant receipts or invoices for these additional expenses.
The ATO releases a Taxation Determination annually to outline what the office considers a reasonable travel and overtime meal allowance.
Is Travel Allowance Considered Income?
The work-related travel allowance you receive from your employer is considered assessable income and is listed on your income statement. Tax may be withheld from this payment.
This means you can claim the cost of your accommodation, meals, and other incidentals on your tax form as they’re incurred during your work-related travel. However, those expenses must have actually been incurred and be on the list of allowable deductions. Just because you received a travel allowance does not mean that you can claim a tax deduction.
Tax deductions for travel expenses can be claimed by a business taxpayer or employee on a salary. However, to do so, it should comply with the following conditions:
- You can only claim incurred expenses as part of a business or work-related travel
- Your claimed amount depends on whether you receive an allowance for incurred costs and whether your pay-as-you-go (PAYG) summary includes that allowance
Tax Deductions for Work-Related Travel
It can be pretty confusing to understand which travel expenses are tax-deductible. Here’s a list of travel expenses that can be claimed on taxes:
- Meals for overnight travel
- Incidental costs
- Renting a vehicle, including fuel, registration, insurance, and repairs
- Public travel costs such as airfare, ferry fares, bus fares, taxi fares, and train and tram tickets
- Travel expenses between two workplaces
- Bridge and toll fees
- Parking fees
- Costs related to work-related usage or maintenance of a car, van, or utility truck designed to carry one ton or more of cargo
- Costs related to work-related usage or maintenance of a motorcycle or road vehicle designed to carry nine or more passengers
There are also a few expenses that you cannot claim as a deduction on work-related travel:
- Travel expenses between work and home
- Travel expenses for your family members who accompany you during your work-related trips
- Add-on flights or trips not related to your work
- Expenses involving running an errand on the way to or from work
- Personal purchases you incurred during your work-related travel. Examples of this include watching a movie, buying a book, booking a tour, etc.
- Your home is also your workplace and you travel to a different location to work for another person or company
- Staying an extra night for personal purposes (e.g. visiting a friend) after work
- Expenses for an addition of a work event while on vacation or days off. For example, you may be vacationing for a week. While in your vacation destination, you decided to attend a 2-day work-related conference. In this case, you can claim for the cost of the conference. However, you can’t claim the accommodation or travel costs related to the trip. That’s because the original purpose is to enjoy a holiday, not attending a business-related event.
When it comes to domestic or overseas travel, tax-deductible work-related expenses can include meals, accommodations, car rentals, and other incidental fees (as described above), wherein travel comprises an essential part of your income-earning activity. However, you must be able to prove a relevant link between your travel and your source of assessable income.
Do I Have To Declare Travel Allowance On My Tax Return?
As a general rule, any travel allowance you receive is usually included on your income statement or payment summary as an allowance. You may not need to declare a travel allowance as income if:
- the travel allowance is not shown on your income statement or payment summary
- It does not exceed the designated reasonable amount and
- it was spent entirely on deductible costs
However, if not declared on your tax return, you will not be able to claim tax deductions on related expenses.
Can I Claim Deductions for Expenses Covered By Travel Allowance?
As long as your travel expenses are related to your work, and the expense is declared as part of your income, you can claim these expenses as tax deductions. To claim deductions for a trip when you’ve received a travel allowance, you must declare the travel allowance on your tax return.
However, don’t assume that the entirety of the allowance is tax-deductible. That is a common mistake! What you can claim is only the total amount of your actual expenses.
For example, let’s say your employer provides you $2000 worth of travel allowance for the year, but your travel cost throughout the year only amounts to $1500. In this scenario, you can only claim $1500 worth of travel deductions.
Finally, note that you can only claim for eligible work-related expenses, as per typical ATO rules. Even if you spend a portion of your travel allowance on non-deductible expenses means you still won’t be able to claim them on your taxes.
Working Away From Home & Work-Related Travel FAQs
Here are some frequently asked questions regarding working away from home tax deductions.
Can I Deduct Rent if I Work Away From Home?
According to the ATO, costs involving financing, holding and maintaining accommodation or rent when travelling to perform work duties may be deductible as work-related travel expenses. This is typically if you are on a temporary assignment rather than a long-term arrangement.
ATO guidelines list rent under types of costs that can be claimed when working away from home. However, costs that can not be claimed include furniture and other household items for your accommodation.
Can I Claim Food Expenses When Travelling for Work?
Meal expenses during overnight travel can be claimed as a tax deduction. This only applies when you are travelling away for work on overnight trips. These expenses aren’t tax deductible if you are living away from home or relocating.
To claim your food expenses and other deductible travel expenses, make sure you keep the receipts for all your food purchases and meals. This does not apply if you have already received an allowance from your employer for these food expenses.
You also aren’t entitled to claim a deduction if you have received reimbursement for your food expenditures.
What Records Should I Keep to Claim Travel Expenses?
To claim travel expenses as a tax deduction, keep documentary evidence of expenses such as bank statements, credit card bills, and receipts. It’s recommended you keep these records securely for five years.
Need Tax Advice On Living Away From Home Arrangements?
With so many factors to consider, it’s worth consulting an experienced accountant for your ‘living away from home’ or FIFO tax return. At WealthVisory, we specialise in these complex working arrangements, and have helped countless FIFO workers in Western Australia get the most out of their annual tax return.
For friendly professional tax advice you can trust, make an appointment with WealthVisory Accounting.
This article is provided as general information only and does not consider your specific situation, objectives or needs. WealthVisory Accounting makes no warranties about the ongoing completeness or accuracy of this information. It does not represent financial advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.