Treasury released the draft legislation in respect of the changes to Living Away From Home Allowances (LAFHA) on 15 May 2012.
- The changes will apply from 1 July 2012
- Treats the LAFHA as part of an employee's assessable income rather than as fringe benefits;
- It will require all employees (permanent residents, temporary residents and foreign residents) to claim a tax deduction against their LAFHA where:
- The employees who maintain a home in Australia for their own personal use and enjoyment at all times while required to live away from home for their work;
- for reasonable expenses incurred and substantiated for accommodation and food beyond a statutory amount;
- for a maximum period of 12 months in respect of an individual employee for a particular work location.
- The 12 month limitation does not apply to fly-in fly-out workers.
- An employee who meets the requirements outlined above will be eligible to claim a deduction for food and drink, and accommodation expenses incurred while living away from their usual place of residence. The expenses can only be deductible to the extent they are reasonable.
- An employee can deduct food and drink expenses to the extent the expenses are reasonable and exceed $110 (previously $42) in relation to a seven day period for each individual of 12 years of age or older and $55 (previously $21) in relation to a seven day period for each individual under the age of 12 years for the 2012-13 income year. These amounts will be indexed.
- Substantiation rules will apply:
- The expenditure on food and accommodation needs to be substantiated by the employee by obtaining written evidence in accordance with Subdivision 900-E of the ITAA 1997;
- It will not be required for food expenses unless the expenses exceed an amount specified in a determination by the Commissioner of Taxation. If employees claim amounts in excess of the reasonable amount, the full amount must be substantiated.
- The documentation has to be retained for 5 years.
Limited transitional rules
Transitional rules will only apply to:
- permanent residents who have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012. These employees will not be required to maintain a home in Australia and the concession will not be limited to a maximum of 12 months until the earlier of 1 July 2014 or the date a new employment contract is entered into.
- temporary residents who are maintaining a home in Australia and have employment arrangements for living-away-from-home allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.
Unless covered by the transitional rules, the new rules detailed above apply from 1 July 2012.
The reforms will generate a substantial increase in taxes when compared to that outlined in the November 2011 Consultative document:
The increase in revenue is driven by a number of key changes:
- The inclusion of the need for a permanent resident to maintain a home at all times for their personal use. This requirement was not present under the existing LAFHA rules contained in the FBT regime;
- The 12 month time limit. Under the existing FBT regime a 24 to 36 month time period was acceptable.
The draft legislation is silent in respect of the interaction with the other exemption provisions within the FBTA Act. It would be beneficial that a positive statement issue from the Treasury confirming that the existing exemptions will continue to apply.
It should be noted that under the proposed changes, the living away from home allowance will be treated as an allowance and therefore falling within the meaning of Ordinary Times Earnings (OTE) for Superannuation Guarantee purposes. SGR 2009/2 provides an extensive overview on the meaning of OTE. The following is an extract from this ruling:
"Expense allowances and reimbursements
72. Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'.
73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary or wages'."
Will the LAFHA paid to an employee who qualifies as living away from home fall within the exclusion contained in Paragraph 72 of SGR 2009/2?
We are seeking clarity from Treasury on this matter.
The proposed changes will also impact Payroll Tax and WorkCover which are State imposts. Currently a correctly structured LAFHAS is exempt; the States will need to amend their respective legislation to ensure this treatment remains in place post 1 July 2012.
In these restrained times, will the States make the necessary amendments?
Treasury is inviting submissions. They must be lodged by Tuesday 29 May 2012.
Bearing in mind, submissions were sought on the initial consultative document and subsequently ignored, I do not hold out much hope for any change.
That being said, Moore Stephens will be lodging a submission.
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