The Australian Treasury proposed significant changes to the Living Away From Home Allowance (LAFHA)
in November's Mid-year Economic and Fiscal Outlook 2011-12.
LAFHA was introduced to help manage the costs of working away from home and provided recipients with their accommodation and food expenses without paying income tax.
Under current rules, it is also an exempt fringe benefit for employers to employees to compensate for the additional costs of living away from their usual place of residence while they perform their employment related duties.
Temporary residents have enjoyed this generous tax concession, as outlined in December's newsletter, but the proposed changes may significantly impact the budgets of individuals and families who have been able to cover a range of costs before tax.
These are important considerations for anyone planning to move to Australia as a temporary resident for work, however for employees already here, they will need to understand the financial impact of these changes.
For employees such as permanent residents and a small portion of temporary residents, they will not lose any existing entitlement but the substantiation requirements have changed and it is paramount to understand the changes since it is likely that LAFHA represents one of the largest deductions in personal tax returns.
Employers will need to consider some practical issues, for example:
- Determining which employees are affected by the changes
- The need to increase the gross salaries of these employees in order to compensate for the extra tax payable
- The need to review existing employment contracts and
- relevant LAFHA arrangements to determine ongoing employer obligations
- The need to set up supplementing systems or processes to capture and record extra information to avoid adverse tax
- consequences to employees (e.g. Increased income tax) and the employer (increased FBT) depending on the current arrangement
- FBT compliance audits are currently a major focus of the ATO audit program and it is likely that there will be an increased focus on LAFHA benefits
The Government has announced a number of changes to the LAFHA scheme which are expected to apply from 1 October 2012. It is highly recommended that you speak to an accountant to understand how these changes to LAFHA can affect your Australian taxation obligations. Contact us on 02 9957 4033 for guidance and more information.
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Last updated February 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.