Working Away From Home? A Practical Guide to LAFHA for Contractors
For contractors required to work away from their usual home, the financial pressure can escalate quickly. Maintaining two households, paying rent or accommodation near the worksite, covering daily meals, and being separated from family all add to the cost of accepting temporary roles.
The Living Away From Home Allowance (LAFHA) exists to offset many of these unavoidable expenses. It is a tax concession designed to recognise the additional accommodation and meal costs incurred when a contractor must temporarily live away from their normal Australian residence for work.
What is LAFHA, and How Does It Apply to Contractors?
The Living Away From Home Allowance helps contractors offset additional accommodation and meal costs when they are required to temporarily reside away from their usual Australian home for work purposes. LAFHA differs from travel allowances, which are typically applied to short-term trips and are subject to taxation.
LAFHA generally covers:
- Temporary accommodation
- Additional food and drink costs
For example, under the latest ruling for the FBT, year commencing 1 April 2025, the ATO sets a reasonable weekly food and drink amount of $341 for one adult. This is not an automatic entitlement, but a compliance threshold. Amounts at or below this level generally do not require receipts, while amounts above it must be substantiated or may be taxable.
How LAFHA Differs From Travel or Remote-Work Allowances
It can be easy to confuse LAFHA with a travel allowance; here’s a summary of how they differ:
- Travel allowance: Applies when you travel for work but still reside at your usual home, or the assignment is of short duration (like an overnight trip). It is treated as taxable income.
- LAFHA: Applies when you must live away from your usual Australian home for work and maintain that home while temporarily relocating. Certain parts of the allowance may be exempt from FBT if they meet the ATO’s limits. For example, you might need to live in another city for six months while working, but you intend to return to your usual home afterwards.
In simple terms, a travel allowance means you return home; LAFHA means you temporarily live away from home. Correct classification prevents incorrect tax or FBT treatment.
LAFHA Eligibility Criteria for Contractors
To determine if you are eligible for LAFHA, contractors (and their employer or labour-hire sponsor) must satisfy several criteria. Key points include:
- You maintain a usual place of residence in Australia, which remains available to you while you live away for work.
- The working location is sufficiently distant that returning to your usual residence each day is impractical.
- The relocation is temporary and is part of the employment arrangement (not a permanent relocation).
- The allowance is provided to cover additional living expenses (accommodation and food) while away, rather than simply for travel or short-term duties.
- Your employer obtains a valid declaration about your living-away-from-home status, or uses the alternative record-keeping regime.
- There may be a time limit (commonly 12 months at one location) for the concessional tax treatment for most arrangements (unless special FIFO/DIDO provisions apply).
For contractors, especially those placed through labour-hire arrangements or on projects away from their home base, it is essential to evaluate whether the on-hire and payroll structure allows for LAFHA. If you’re employed by a labour-hire company acting as the legal employer and you are living away for work, the allowance may be structured accordingly.
What Contractors and Employers Need to Claim LAFHA
To access LAFHA, both the contractor and the employer must demonstrate that the arrangement is temporary, legitimate, and adequately documented. To meet ATO requirements, you will need:
- LAFHA, clearly identified in the employment agreement
- A valid declaration confirming you are living away from your usual home
- Proof of additional accommodation costs and evidence that your home remains available
- Food and drink within the ATO’s reasonable amounts or supported by receipts
- Employer records showing how exempt and taxable amounts were calculated
Contractors should engage their payroll provider or tax professional early in the assignment process, particularly when living away from home, to determine LAFHA eligibility and the most suitable structuring.
Key Tax and Compliance Considerations for Contractors and Employers
| Consideration | What It Means |
| Duration of assignment and location | LAFHA concessional treatment generally applies to temporary placements only. Assignments lasting over 12 months at a single location may lose exemptions unless special FIFO/DIDO rules apply. |
| Maintaining the home | You must keep a usual home in Australia that remains genuinely available. Selling or permanently relocating from that home can result in the loss of LAFHA eligibility. |
| Food and drink thresholds | The ATO sets reasonable weekly amounts (e.g., $341 for one adult). Costs exceeding these amounts require substantiation or may be subject to taxation. |
| Substantiation and declarations | Missing declarations or evidence can result in the allowance being treated as fully taxable or subject to full FBT. Proper records are essential. |
| Contractor vs employee distinction | Eligibility may vary based on engagement type (labour-hire, on-hire, direct hire). Work structure and residence status must align with ATO rules. |
| Reporting obligations | Employers must manage FBT lodgements, include RFBAs where required, and process LAFHA correctly through payroll systems. |
| Workforce mobility | Contractors moving between sites or interstate can use LAFHA to offset costs if the arrangement is structured correctly. Early assessment helps maintain compliance. |
| Professional guidance | Contractors should involve a payroll professional or tax expert early to confirm eligibility and ensure the LAFHA is structured correctly. |
Conclusion
For contractors required to live away from their usual home for work in Australia, LAFHA can present a significant financial benefit, reducing taxable income, assisting with accommodation and food costs, and improving take-home pay. However, the rules are detailed, and compliance is essential. From ensuring you maintain a home to obtaining the proper declarations and staying within the ATO’s allowances, every step matters.
If your contract involves working away from home, it is worth reviewing whether your arrangement qualifies for LAFHA and making sure the allowance is structured correctly. Getting this right can make a substantial difference.
How SDP Solutions Supports Contractors Living Away From Home
SDP Solutions helps contractors set up and manage LAFHA correctly. We assess eligibility, structure allowances compliantly, and manage payroll, FBT and documentation, reducing tax risk and administrative burden. If you are working away from home, speak with SDP Solutions about managing LAFHA within a compliant employment framework.
