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Fringe Benefits Tax Reform

7 Mar 2012 1:59 PM -

The Living Away from Home Allowances (LAFHA) benefits are intended to compensate employees for additional costs incurred by them when they are temporarily relocated by their employer for their work.

However, the LAFH benefit concessions are now being widely exploited so that some employers do not pay FBT and employees do not pay tax on income claimed to be spent on accommodation and food for those living away from home.

A particular concern is that certain employers are using the concession to allow temporary resident workers coming to Australia (including through labour hire and contract management companies) to convert their taxable salary into a tax-free allowance. This provides them with an unfair advantage over Australian workers.

The changes proposed will ensure a level playing field exists between hiring an Australian worker or a temporary resident worker living at home in Australia, in the same place, doing the same job.

No permanent resident receiving LAFH for genuine reasons will lose any existing entitlements under the changes. In addition the changes will not affect travel allowances provided to employees who have to travel from their usual place of work for short periods or any FBT remote area concessions.

As of 1st July 2012, the Government has proposed the following changes to the LAFHA, meaning employers and employees will need to substantiate these claims.

The changes include:

  • A requirement for individual tax payers to be able to substantiate their LAFHA provided by their employer. i.e. Accommodation and food expenses beyond statutory amounts.
  • Taxation treatment of LAFHA will be administered under Income Tax rather than Fringe Benefits Tax.
  • Denying access to the deduction of LAFH expenses in income tax return to temporary residents unless they already lived in Australia and continued to maintain that home in Australia while living away from home.

What does this mean?

  • The LAFHA will no longer be tax free and will be included as an allowance on your employees PAYG Payment Summary Statement.
  • The employee can then claim a deduction for their living away from home expenses (beyond the statutory amount) as long as they are NOT a temporary resident and all deductions can be substantiated.

LAFHA time frame

  • Australian resident – no more than 2 years
  • Permanent Resident for Australian tax purposes (e.g. someone who is an Australian Citizen) who resides overseas and moving to Australia temporarily – no more than 4 years.

WHO are Temporary Residents?

  • ANYONE who is not an Australian Citizen or Permanent Resident.
  • A person who had no residence in Australia before obtaining LAFHA i.e. did not already live in Australia / plan to continue to live in Australia after LAFHA, did not maintain a home in Australia while living away from home.

When is a decision likely to be made?
The Australian Government are currently reviewing public submissions. Once this process is completed there should be a clear indication of the changes to be implemented.

Further detail can be found at the Australian Treasury website.

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