The Federal Government announced last week as part of the
Mid-Year Economic and Fiscal Outlook that it will reform the tax
treatment of the living-away-from-home (LAFH)
allowance and benefits.
The Government proposes to remove the concessional treatment of
the LAFH allowance (LAFHA) paid to temporary
residents working in Australia. The changes are intended to apply
from 1 July 2012 for both new and existing arrangements.
The changes are in response to claims by the Inspector General
of Taxation, the Australian Taxation Office and more recently at
the 2011 Tax Forum that the LAFH benefits are being exploited.
What are the changes?
Treasury has released a Consultation Paper outlining the
proposed amendments. The key changes are as follows:
the tax treatment of the LAFHA will be dealt with under the
income tax system (and removed from the FBT regime). The LAFHA will
be treated as assessable income of the employee;
all employees, except for temporary residents, who receive the
LAFHA will be able to claim an income tax deduction for
accommodation expenses that they can substantiate and for food
expenses beyond the statutory limit;
temporary residents who receive the LAFHA will only be able to
claim an income tax deduction for substantiated LAFH expenses if
they maintain an Australian home and live away from that home due
to work; and
other LAFH benefits (such as accommodation in the form of an
expense payment or residual benefit) provided to permanent
residents and temporary residents will continue to be exempt from
FBT if they maintain a home in Australia which they are living away
from for their work.
All benefits and allowances provided in respect of the period
commencing 1 July 2012 will be subject to the new arrangements. The
following classes of taxpayer will not be affected by the
permanent residents receiving LAFH benefits that can be
employees operating under fly-in fly-out arrangements within
employees of community sector organisations who are not
currently using all of their FBT exemptions cap.
Treasury has invited the public to make written submissions and
comments on the proposed changes, as well as the need for any
special transitional arrangements. Submissions must be made by 3
The changes will increase the tax paid by employees who are
temporary residents and receive LAFH benefits. The costs to
employers of temporary residents will also rise, particularly for
those employers that pay tax equalised salaries or guaranteed net
Employers should review their existing arrangements and
adequately prepare for the changes. The changes should also be
taken into account when negotiating future employment
We will keep you updated as developments occur. In the meantime,
should you require assistance with the preparation of a written
submission or any further information in relation to the proposed
changes, please contact us.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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