• FBT Reforms - Living-Away-From-Home Targeted
  • December 12, 2011
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • 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 reforms:

    • permanent residents receiving LAFH benefits that can be substantiated;
    • employees operating under fly-in fly-out arrangements within Australia; and
    • 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 February 2012.

    Implications

    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 salaries.

    Employers should review their existing arrangements and adequately prepare for the changes.  The changes should also be taken into account when negotiating future employment contracts.