Living Away From Home Allowances (LAFH) and GST: What Contractors Need to Know
- JH Bookkeeping Solutions
- Jul 22
- 2 min read
If you're a contractor or business entity working away from home and charging clients a daily Living Away From Home (LAFH) allowance, there's an important GST rule that’s often misunderstood.
Many contractors believe that because LAFH is tax-free when paid by an employer to an employee, it must also be GST-free when charged to a client. However, this is not the case when it comes to business-to-business invoicing.
LAFH Allowances Are Part of Your Taxable Supply
Under section 9-5 of the GST Act, any amount received by a contractor for services is considered part of the taxable supply, unless a specific exemption applies. This includes any daily allowance or additional payment for working away from home.
If you invoice your client for both time and a daily LAFH rate, that entire amount — including the LAFH component — is subject to GST (assuming you are registered for GST).
The ATO has clarified this in ATO ID 2002/300, which deals specifically with whether an amount paid by a recipient of a contractor’s services (such as a company engaging a sole trader or entity) for living away from home is subject to GST. The conclusion: yes, it is.
Why the Confusion?
The confusion stems from the fact that employees can receive a Living Away From Home Allowance that may be tax-free under the Fringe Benefits Tax (FBT) regime. But that tax treatment applies strictly to employer-employee relationships — not to independent contractors or business entities providing services.
When you're engaged as a contractor or through your own entity, you are not receiving an “allowance” in the employment sense — you’re charging a fee. That fee, regardless of what it's labelled, forms part of your service and is generally subject to GST.
What Contractors Should Do
Review your invoicing: If you’ve been excluding GST from your LAFH component, you may need to adjust your invoices.
Educate your clients: Some companies may incorrectly assume GST doesn’t apply, but the ATO’s guidance is clear.
Check your contract: Make sure it clearly outlines whether rates quoted are GST inclusive or exclusive.
Consult your tax advisor: If you're unsure, it's worth getting advice tailored to your situation.
Final Thoughts
If you're invoicing for LAFH as part of your services, it should be treated as part of your taxable income and subject to GST, unless a specific exemption applies. Don’t rely on employment-based tax rules to guide contractor invoicing — they don’t always align.
For further details, you can read ATO Interpretative Decision ATO ID 2002/300 on the ATO Legal Database.
This article provides general information only and does not constitute tax advice. Please consult a registered tax agent or advisor for guidance specific to your situation.
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