More changes to the living away from home allowance
The reforms to tighten eligibility to the living away from home allowance (LAFHA) tax concession are currently before Parliament.
From 1 October 2012, the LAFHA tax concessions will have restricted application. In particular:
- in order to be eligible, employees must maintain a home in Australia
- the concessions will only operate for 12 months.
Where the concessions apply, the taxable value of a LAFHA fringe benefit will be reduced by any amounts of the LAFHA that reasonably represent compensation for expenses to be incurred for accommodation and food.
Employees who are working on a fly-in fly-out or drive-in drive-out basis are not subject to the 12 month limit and do not have to maintain a home in Australia.
Maintaining a home in Australia
An employee or their spouse must maintain a home in Australia for their immediate use and enjoyment at all times while required to live away from that home for work. They must have an "ownership interest" in their home, which includes being an owner or a lessee.
The employee must also incur the ongoing cost of maintaining their home, such as mortgage or rental payments, without the benefit of renting or sub-letting the property. This will significantly restrict eligibility to the concessions.
12 month time limit
The LAFHA concessions will only operate for a period of 12 months, after which time employers will be required to pay full fringe benefit tax (FBT) on any LAFHA paid to staff.
This is problematic, as employers who relocate staff generally encourage them to stay for at least two years in order to offset the cost of initial relocation. Employers may now avoid sending staff on secondments for longer than 12 months, which will impact their business operations.
Transitional relief
Transitional relief applies to permanent residents and offshore workers who meet the following requirements:
- the employee had an employment arrangement in place prior to 7.30pm (AEST) on 8 May 2012 (Budget time)
- the employment arrangement was not "materially varied" or renewed between Budget time and 1 October 2012
- if the employee is an offshore worker, they are maintaining a home in Australia.
Where transitional relief applies, the 12 month limit will commence from 1 July 2014. However if there is a "material variation" to, or a renewal of the employment arrangement before 1 July 2014, the new rules will take effect from the date of the variation or renewal.
It is essential for employers to understand what may trigger a material variation of an employment arrangement to ensure they do not inadvertently lose the benefit of the transitional rules. Broadly, there will be a material variation where there is a change in the underlying terms of an employment arrangement. Changes that merely reflect annual adjustments are not material variations.
Conclusion
The new concessions will impose additional costs on employers. The 12 month limit will be a particular issue for employers who regularly send employees on domestic secondments for a few years.
The requirement to maintain a home in Australia means that offshore workers on 457 visas will not qualify for the concessions. Employers who seek to attract quality employees from offshore will accordingly have an additional tax burden where they employ foreign workers.
The ATO will closely scrutinise employers to ensure compliance with the rules, as a key focus of the ATO's Compliance Program for 2012-13 is FBT avoidance.
Middletons can help you in preparing for the new measures. Our Tax & Revenue Group can ensure you comply with your FBT obligations, and our Workplace Relations & Safety Group can assist you in reviewing employment arrangements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
