Living away from home?

June 2012

Living Away From Home Allowances (LAFHA) are paid to employees to compensate for additional expenses and disadvantages they might suffer because they need to live away from home to do their job.  

However, the Government is concerned by the rapid expansion in the number of claims made with a 457% increase in the value of LAFHA claims in six years (from $162 million in 2004/2005 to $740 million in 2010/2011).  

How will LAFHA change?

In November 2011's Mid-year Economic and Fiscal outlook, the Government announced several changes to take effect from 1 July:

Maintenance of an Australian residence: Temporary residents will only be able to access LAFHA concessions where they maintain an Australian residence for their own use and are required to live away from this residence as part of their employment duties. This rule mainly targets expatriate employees who do not have a residence in Australia.

LAFHA to be taxable: LAFHAs will be included in the taxable income of the employee rather than being taxed in the hands of the employer through the FBT system. The employee will be able to claim deductions for actual accommodation and food expenses incurred while living away from home, but these expenses must be substantiated under the normal operation of the rules.

This means that employees will now need to hold invoices or receipts for rent, grocery and other out goings in order to reduce their taxable allowance.

Exemptions from FBT: Reimbursements and payments of actual food and accommodation expenses by employers will still be exempt from FBT subject to new substantiation requirements.

Transitional measures

On 8 May 2012, the Government proposed to limit the LAFHA benefits for a maximum period of 12 months for any employee in respect of a particular work location as part of the 2012/2013 budget announcements.

The transitional measure will grandfather these pre-existing "arrangements" not subject to the proposed measures until 1 July 2014. This means that employees currently eligible to claim concessions in respect of LAFHA will be able to do so until 30 June 2014 – as long as they are still considered to be living away from home.

According to the draft registration, the transitional rules are primarily aimed at permanent residents, and effectively all employees who are temporary residents for Australian tax purposes will be subject to the proposed new rules.

This means that temporary resident residents will have to maintain a home in Australia they are living away from before they qualify for the transitional rules.

Watch this space

There are still various questions about the changes to LAFHA, for example, what happens to other concessions relying on the concept of living away from home, unanswered so stay tuned for future updates.

The Government has announced a number of changes to the LAFHA scheme which are expected to apply from 1 October 2012.

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Last updated June 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.

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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.

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