Question
Council is planning to have an employee posting overseas for six months. For the reasonable food component, if Council only pays additional costs (ATO overseas reasonable limit minus $42 statutory amount), these additional costs should be exempted from FBT. Please confirm if this is correct. Should we have this stated in the living-away-from-home declaration form or any other document for substantiation purposes?
Regarding reasonable accommodation, is there any difference if Council directly organises accommodation or pays the employees accommodation costs from a tax perspective?
Answer
The ‘food component’ is so much of the living-away-from-home allowance (LAFHA) as is reasonable to compensate for expenses incurred by the employee for food and drink for the employee and their family.
The ‘applicable statutory food total’ is:
- the sum of the statutory food amounts of the employee and any eligible family members;
- less any amount that might reasonably be expected to be the total normal food or drink expenses for the family had they remained living in their normal residence during the period that was taken into account by the employer in working out the food component.
The ‘statutory food amount’ is $42 per week for an adult and $21 per week for a child under 12 years.
In practice, the calculation can involve either compensation for:
- additional food or drink expenses—i.e. the allowance is net of the statutory food amount; or
- total food or drink expenses—i.e. the allowance includes the statutory food amount.
Accordingly:
- Where the food component is calculated as compensation for the total food costs, the amount of the ‘exempt food component’ is the amount of the food component reduced by the statutory food component.
- Where the food component is calculated as compensation for estimated increased home food costs; and
- the amount of the food component has been reduced by the estimated home food costs before being paid to the employee; and
- the amount of the reduction is the same or more than the statutory food amount; the whole of the food component is exempt.
It is recommended that the basis of the food component be outlined in documentation between you and the employee in the form of a formal letter or change/variation to their employment agreement during the overseas posting.
Please refer to TD 2018/3 for the latest Commissioners reasonable food amount listings.
Regarding accommodation, the FBT treatment is essentially the same whether the accommodation is organised by the employee (refer to section 21 of the FBTAA) or directly by the employer (refer to section 47(5) of the FBTAA). Living away from home accommodation costs are required to be substantiated.
Refer to the following link for relevant living away from home FBT declarations.