On 19 September 2012 the Senate passed the Bill in relation to the reform of the ‘Living Away From Home Allowance’ (LAFHA) rules. The Bill included amendments that were substantially different from prior announcements and represents the culmination of almost 12 months of consultation and lobbying.
After being passed by both the House of Representatives and the Senate without further changes, the Bill effectively awaits Royal Assent.
Importantly, non-residents and temporary residents will be subject to the new rules from 1 October 2012 unless they satisfy the requirement of maintaining a home in Australia. The practical effect is consistent with previous versions of the amendments – expatriate employees will be unlikely to be able to receive a tax free LAFHA from 1 October 2012.
The new rules will apply from 1 October 2012 subject to transitional measures detailed below.
The taxation of LAFHA’s will remain within the Fringe Benefits Tax (FBT) system
Employees receiving a LAFHA will NOT be required to include the allowance as assessable income in their personal income tax return, nor will employees be required to claim a tax deduction for food or accommodation expenses (as had previously been announced). Instead LAHFA’s will be taxed under the FBT provisions. Concessional treatment may be available in limited circumstances as detailed below.
Taxable value of LAFHA benefits
The default position will be that from 1 October 2012 employers will be required to pay FBT on the full amount of the LAFHA.
Where the concessional FBT treatment is available (as below) the taxable value of the LAFHA will be reduced by:
- the amount of the employee’s actual accommodation expenditure incurred in relation to LAFHA that is substantiated; and
- a food and drink component as prescribed.
The new laws will limit the concessional FBT treatment of LAFHA to a maximum of 12 months, and will only apply to LAHFA’s provided to employees who:
- maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times
- are required to live away from their normal residence because of their duties of employment; and
- have provided their employer with a declaration about living away from home.
Special rules apply to fly-in fly-out (FIFO) and drive-in drive-out (DIDO) arrangements.
Transitional rules may apply in respect of LAFHA’s provided to employees that are Permanent Residents of Australia with a living away from home benefit agreement in place before 7.30pm on 8 May 2012. In such cases, the resident employee does not need to satisfy the requirement of maintaining a home in Australia and the 12 month time limit will not apply.
The transitional concessions will be available for the period from 1 October 2012 until 30 June 2014. However, the period will end earlier if the eligible employment arrangement ends, is varied in a material way or is renewed.
The above position will also apply, in essence, where the employer reimburses an employee for accommodation costs or provides accommodation to the employee where the employer is the lessee.
Importantly, the benefits associated with relocation (e.g. removalists costs and stamp duty on the acquisition of a dwelling) are unaffected by these new rules and continue to be useful tax effective ‘salary packaging’ items.
If you require any further information on these changes or assistance with reviewing and redesigning the way you deal with LAFHA arrangements, please contact us.
We work with numerous businesses to design commercially focused and tax effective remuneration plans for their employees, including expatriates. We also assist numerous expatriate employees to negotiate tax effective packaging arrangements.