The Assistant Treasurer has released a consultation paper on 29 November 2011 proposing a fundamental reform to how Living Away From Home Allowance (LAFHA) and other associated benefits will be taxed from 1 July 2012 for temporary residents. These changes will significantly impact Australian businesses.
Currently the Fringe Benefits Tax Assessment Act 1986 (FBT Act) provides concessional taxation treatment for benefits provided to employees compensating them for additional accommodation and food expenses incurred due to them being required to temporarily live away from home from their usual place of residence in order to perform their employment duties.
Structured appropriately, these benefits can be exempt from fringe benefits tax (FBT) and in the case of LAFHA, the amounts paid are not taxable in the hands of the employees. The Assistant Treasurer highlighted that concerns had been raised at the recent 2011 Tax Forum, by the Australian Council of Trade Union (ACTU), which holds a slightly biased view on the whole skilled migration debate.
LAFHA no longer a fringe benefit
Under the proposed changes, the FBT Act will be amended to remove LAFHA as a fringe benefit and instead will be included as assessable income for the employees unless:
- They are permanent residents or temporary residents maintaining a home in Australia which they are living from for work; and
- Expenses relating to accommodation and for food above a statutory amount can be substantiated.
A temporary resident is considered to be maintaining a home in Australia for their own use when that home is available for their personal use and enjoyment at all times, which includes an owned or rented unit of accommodation defined under the FBT Act.
The vast majority of temporary residents will fail this test and
will not qualify for concessional tax treatment.
Other LAFH benefits
Where the employer is reimbursing expenses relating to accommodation and food above a statutory amount, or providing these benefits directly to the employees, the FBT exemption will be similarly restricted to permanent residents or temporary residents maintaining a home in Australia which they are living from for work, with supporting documentation being required for amounts paid.
If enacted, the proposed changes will apply to both new and existing arrangements effective 1 July 2012.
The lack of transitional rules is a major concern.
A copy of the discussion paper can be found at:
The Treasury is facilitating a public consultation process, with submissions due by 3 February 2012.
The consultation paper stressed that following classes of taxpayers will not be affected by the reforms:
- Permanent residents receiving LAFH benefits that can be substantiated;
- Employees operating fly-in fly-out arrangements within Australia; and
- Employees of community sector organizations who are not currently using all of their FBT exemptions cap.
In light of the consultation paper, our comments are:
- Let me be blunt, this is a revenue raising exercise and I do not expect Treasury's position to change irrespective of the concerns raised in the invited submission.
- If the Treasury and the Australian Taxation Office (ATO) had been so concerned with the purported rorting, increased audit activity could have occurred. For the year ended 30 June 2009, the ATO interviewed 4,800 employers, of which 200 were not meeting their FBT obligations. Clearly no ATO resources were made available.
- The consultation paper makes it clear that no transitional period will apply. Many individuals accepted roles in Australia and obtained Private Binding Ruling from the ATO that they will qualified as living away from home.
- Employers when costing projects in Australia need certainty. What message has this send to the international business community?
- The ACTU and the Federal Government appears to be comparing apples and oranges:
- Additionally in New South Wales, children holding a temporary resident visa are required to pay a Temporary Resident Program Administration Fee and Education Fee varying between $4,500 to $5,500. Unsurprisingly, a similar regime operated in the Australian Capital Territory, but the fees range from $9,320 to $13,900. The other states do not impose these additional costs on temporary residents.
- The consultation paper also appears to be silent on the flow on impact of overseas employee education expenses and home leave airfares. Both these benefits are predicated on the employee being treated as living away from home. This exemption also applies in respect of Australian nationals working overseas.
- Finally, unlike permanent residents, temporary residents can't vote.
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