In Australia, extra money given to an individual by their employer to cover certain living expenses is called allowances. While most of these allowances are taxable, some may be exempt from tax. Your clients may be able to claim exemptions for the following allowances: motor vehicles, accommodations, living away from home (LAFHA), and direct reimbursements.
What are motor vehicle allowances?
Motor vehicle allowances are paid to an individual by their employer to compensate for their car to conduct any company business. Generally, they can be paid in three ways: per kilometre, flat or fixed amount, or a combination of the two. Motor vehicle allowances paid per kilometre are exempt from tax. Usually, a motor vehicle allowance paid at a flat rate is not exempt from taxation unless the employee can verify the number of business kilometres travelled. If the allowance is delivered as a combination of both, the amount that exceeds the maximum exemption is subject to tax.
What are overnight accommodation allowances?
This allowance is paid to an employee to cover any costs they may have when staying in temporary accommodations due to business—for example, a business trip. In general, temporary accommodations involve a continuous period of no more than 21 days. In some cases, they can include a continuous period of more than 21 days as long as the employee still has a place they call home. These allowances are only taxed if they exceed the exempt rate.
What is LAFHA?
LAFHA is a fringe benefit that may be subject to Fringe Benefits Tax. It is a government benefit offered to individuals living away from home for employment reasons. The most common recipients are:
- Australian citizens who live overseas for a job
- Australian citizen living in Australia who are currently living in a new state for work
Direct Reimbursements
What is LAFHA?
Direct reimbursements are anything given to pay back a receipt—for example, business lunches or purchasing office supplies.
If your client is applying for a home loan and wants to use non-tax allowances, contact Mortgage Street. We can help them find a loan that best fits their financial situation.