Whilst the start date for the living away from home allowance ("LAFHA") changes has been deferred from 1 July 2012 to 1 October 2012, Tax Laws Amendment (2012 Measures No. 4) Bill 2012 ("the Bill") is introducing a number of new concepts. Therefore, business will need to determine how they will respond to these changes in coming months.
Just as employers and employees were trying to finalise how they would deal with the new living allowance regime from 1 July 2012 based upon the exposure draft legislation, the Treasurer has announced the starting date of the LAFHA reform will be deferred to 1 October 2012.
The introduction of the Bill into the Parliament comes less than 3 days prior to the supposed start date of the LAFHA reforms as previously proposed during the consultation process.
This additional lead-in time will no doubt be welcomed by many employers as they put in place policies and system changes in order to comply with the changed administration requirements of the new regime.
The Bill also presented a series of technical changes from the previously released exposure draft.
- The employee will not be assessed on the food and drink amounts up to the first $42 per adult and $21 per child per week, if the employee has provided a living away from home declaration that includes a statement that they will incur food and drink expenses.
- The above amounts, now referred to as 'ordinary weekly food and drink expense', will now be treated as a fringe benefit. This is in contrast to the original announcement whereby an amount of $110 per adult and $55 per child per week that would have been included in the employee's assessable income. (Note: If the employee does not provide a living away from home declaration then the first $42 per adult and $21 per child per week would be assessable income to the employee).
- The employee will continue to be able to claim an income tax deduction, to the extent that the payments made are reasonable, for:
- accommodation expenses incurred; and
- food and drink expenses incurred above the 'ordinary weekly food and drink expense'. (Note: the reasonable food and drink expense will be set by the Commissioner of Taxation).
- Applications can be made to the Commissioner of Taxation ("the Commissioner") to vary the amount of tax to be withheld under the Pay-As-You-Go Withholding system for the allowance received.
Fringe benefits tax and superannuation guarantee contributions
As previously reported, the Bill remained silent on the interaction with the other exemption provisions within the Fringe Benefits Tax Assessment Act 1986.
With respect to superannuation guarantee contribution, the accommodation component would be considered an expense allowance that will be fully expended under the reform and should not be ordinary times earnings ("OTE").
The food component, however, is a lot trickier and will depend upon whether or not the employee provides a living away from home declaration.
Where a declaration is provided the employer will not be required to provide minimum superannuation support for the food component received by the employee as the amount is considered to be an expense allowance.
On the other hand, if a declaration has not been provided to the employer:
- the ordinary food and drink expense will arguably be OTE for superannuation guarantee purposes;
- to the extent that the employee is entitled to an income tax deduction for the food and drink expenses incurred, the employer will arguably not required to provide superannuation support for that portion of the LAFHA food component as it represents an expense allowance; and
- The employer will be required to provide superannuation support for any assessable amount above the reasonable amount determined by the Commissioner.
Unfortunately, there is still no guidance on how the various state authorities will respond to the LAFHA reform in respect of payroll tax and WorkCover obligations. Unless the current legislations are amended, a situation could arise where the entire accommodation component and food component (both the FBT component and income tax assessable component) would be subject to these stat imposts.
This would represent in a windfall gain for the states, as under the current regime a correctly structured LAFHA arrangement is exempt from payroll tax or WorkCover obligations.
The following aspects of the proposed LAFHA reforms have remained unchanged:
- The requirement for all employees to maintain a home in Australia and live away from that home for work-related purposes;
- The 12-month time limit for all individuals (other than fly-in fly-out workers) to access the income tax deductions with respect to LAFHA;
- Limited transitional rules will continue to apply for existing arrangements entered prior to 7:30pm (AEST) 8 May 2012; and
- All employees will be required to substantiate the actual accommodation costs, as well as food and drink expenses if they exceed the amounts stipulated by the Commissioner.
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