Understanding the tax implications of accommodation and location-related fringe benefits can save your startup significant money while providing valuable perks to your team. This guide breaks down the essentials every Australian founder needs to know about living away from home allowances, remote work arrangements, and more.
As a founder building your business, attracting and retaining top talent often means offering competitive benefits beyond base salary. Accommodation and location-related fringe benefits can be powerful tools in your remuneration strategy, but they come with specific tax considerations under Australian law.
At Fullstack, we’ve helped numerous startups optimise their fringe benefits strategy while remaining compliant with ATO regulations. This article explores the key elements you need to understand to make informed decisions.
What Qualifies as Accommodation and Location-Related Fringe Benefits?
Accommodation and location-related fringe benefits generally fall into several categories:
- Living Away From Home Allowances (LAFHA) – Payments to employees temporarily residing away from their usual home for work purposes
- Remote work stipends – Allowances for home office equipment and expenses
- Temporary or permanent relocation expenses – Moving costs, temporary housing, and related benefits
- Company-provided housing – Accommodation owned or leased by the employer for employee use
- Travel accommodation – Business-related accommodation during travel
Each of these benefits is treated differently for Fringe Benefits Tax (FBT) purposes, and understanding these distinctions can result in significant tax savings.
Living Away From Home Allowances (LAFHA): Key Considerations
Living Away From Home Allowances represent one of the most common accommodation-related benefits, particularly for scaling companies that need employees to work in different locations temporarily.
LAFHA Eligibility Requirements – for a LAFHA to be concessionally treated under FBT, several conditions must be met:
- The employee must maintain a home in Australia
- The employee must be temporarily living away from that home
- There must be an intention to return to the original home
- The arrangement should generally not exceed 12 months in the same location
FBT Implications of LAFHA
When structured correctly, a LAFHA can be split into:
- Food component – Partially exempt from FBT with substantiation
- Accommodation component – Potentially exempt from FBT with proper documentation
The potential tax savings are significant. For example, properly structuring a LAFHA for a senior engineer temporarily relocated from Melbourne to Sydney could save approximately $15,000-$20,000 in FBT compared to simply increasing their salary to cover accommodation costs.
Remote Work: The New Normal and Its Tax Implications
The pandemic permanently changed how many companies approach work locations. For founders, this creates both opportunities and compliance considerations.
Remote Work Stipends and Allowances
Many startups now provide remote work stipends to help employees establish productive home offices. These payments typically cover:
- Home office equipment
- Internet and utility costs
- Office consumables
- Co-working space memberships
FBT Treatment of Remote Work Benefits
The FBT treatment of remote work benefits depends largely on the structure:
- Direct reimbursement of business expenses – generally exempt from FBT
- Provision of work equipment – typically exempt under the “otherwise deductible” rule
- General allowances without substantiation – usually fully subject to FBT
Founders should note that the “minor benefits exemption” (for benefits under $300) can be strategically used for certain remote work expenses.
Employee Relocation: Temporary vs. Permanent Considerations
As your startup scales, you may need to relocate employees either temporarily or permanently. These scenarios have different FBT implications.
Temporary Relocation Benefits
Temporary relocations (generally under 12 months) may qualify for LAFHA treatment as discussed earlier, offering significant FBT concessions.
Permanent Relocation Benefits
For permanent employee relocations, certain benefits are exempt from FBT, including:
- Removal and storage of household effects
- Sale or acquisition costs of housing
- Connection or reconnection of utilities
- Temporary accommodation for up to 7 days at the new location
However, ongoing accommodation benefits for permanent relocations typically attract full FBT.
Strategic Approaches for Startups and Scale-ups
Based on our experience working with hundreds of Australian startups, we see several strategic approaches:
Early-Stage Startups (Pre-Series A)
- Focus on remote work benefits that minimise FBT exposure
- Use the minor benefits exemption strategically
- Consider co-working space memberships instead of direct cash allowances
Growth-Stage Companies (Series A and Beyond)
- Implement formal LAFHA policies for temporary relocations
- Consider salary packaging arrangements for certain employees
- Explore setting up an employee share scheme to offset the need for cash-based benefits
Multinational Operations
- Understand the interaction between Australian FBT and overseas tax regimes
- Implement consistent global mobility policies
- Consider tax equalisation for employees on international assignments
Documentation Requirements: Protection Against ATO Scrutiny
The ATO has increasingly focused on fringe benefits compliance. Proper documentation is essential and should include:
- Written policies outlining benefit eligibility and conditions
- Employee declarations (particularly for LAFHA arrangements)
- Substantiation of expenses where required
- Records demonstrating the business purpose of the benefit
Maintaining thorough documentation not only protects against compliance issues but often reveals additional opportunities for FBT optimization.
Recent Changes and Future Outlook
The fringe benefits landscape continues to evolve, with several recent developments particularly relevant to accommodation and location benefits:
Increased Remote Work Deductions
The ATO has expanded acceptable deduction methods for remote work expenses, which may impact how you structure remote work benefits.
Digital Nomad Considerations
With more employees requesting “work from anywhere” arrangements, founders should be aware of the potential creation of international tax obligations.
Balancing Competitiveness with Compliance
Accommodation and location-related benefits can significantly enhance your ability to attract and retain talent in a competitive market. However, the FBT implications require careful consideration.
As a founder, your focus should be on creating a benefits package that:
- Provides genuine value to employees
- Minimises unnecessary FBT exposure
- Can scale with your company’s growth
- Remains compliant with evolving ATO requirements
How Fullstack Advisory Can Help
At Fullstack Advisory, we help Australian founders optimise their tax position while providing competitive benefits to their staff. Our services include:
- Fringe benefits tax planning and compliance
- Employee remuneration structuring
- ATO FBT review support
- International tax considerations for remote workers
Ready to optimise your accommodation and location benefits strategy? Contact Fullstack today to discuss your specific needs.
This article provides general information only and does not constitute specific tax or financial advice. Please consult with a qualified adviser before making decisions based on this content.
