Work-Related Overseas Allowance Is Genuine LAFHA Or Assessable Income

Q&A Tax

Question :

Mr. C is an Australian citizen and was employed by a foreign company for the 2018 financial year.
As a requirement of the employment, Mr. C was required to live in China for 12 months. As such he
received the following allowances:

  • Rent Aid
  • Expatriate Uplift Allowance

During the time he lived away, two of his adult children remained in Australia and continued to live in
their family home.

Can the above allowances be considered genuine LAFHA (Living away from home allowances) and
therefore be exempt from tax?

Hint: You may need to consider his resident status for tax purpose.

 

Answer :

Even if these allowances are similar to a LAFHA, both allowances would be included in the assessable
income in Australia if the foreign employer does not have a permanent establishment in Australia (the
employer is not subject to FBT in Australia).

Only if the foreign employer is subject FBT in Australia then the personal allowance wouldn’t be
included in the assessable income and it will be a fringe benefit of the employee. However, TD 2011/1
confirms that if the employer is a non-resident and has not physical business presence in Australia, the
FBT system should not apply to the benefits provided by the employer. If the benefit is outside the
FBT system then it would generally be included in the employee’s assessable income for Australian tax
purposes.

See TD 2011/1 provides some examples dealing with reasonably similar situations.

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