By Geoff Lloyd

Recently announced changes, if implemented as planned from 1 July 2012, could have a far reaching impact on existing living away from home (LAFH) arrangements and those written in the next five months.

Whilst the government is still consulting on its proposals, of particular concern is the current lack of any specific transitional rules. This means that, in only five months' time, it is possible that large tax obligations for employers or their employees will arise in relation to existing employment contracts with LAFH benefits.

The main area of concern is for expatriate employees working in Australia. If they don't have permanent residency in Australia (including many New Zealanders and 457 visa holders) they will not qualify for LAFH concessions under the proposed changes (except for those who have a usual home in Australia that they are "living away from"). This could add a large tax burden to the cost of employing such individuals (either FBT or PAYG gross up for tax equalised arrangements). Alternatively, affected employees may suddenly find they have far less net income from which to meet their accommodation and living expenses.

Grant Thornton recommends reviewing all existing LAFH arrangements to determine the potential cost impact of the changes. In addition, the proposed changes should be taken into account when drafting new employment contacts, letters of offer and other documentation for all new LAFH arrangements.

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