Proposed changes to tax treatment of LAFHA

The Federal Government has recently outlined changes to the taxing arrangements of Living Away From Home Allowances(LAFHA) from 1 July 2012. Under the current legislation there is the ability to pay a LAFHA to employees that consists of payments that cover the costs of accommodation (to a standard that they are accustomed to in their home country) and also a reasonable amount for additional food expenses. These allowances have not been taxable to the employee and they are generally exempt from Fringe Benefits Tax.

The government has signaled their intention to change the legislation from 1 July 2012 to include the accommodation and food component as an assessable allowance to the employee. This allowance will be taxable to the employee and as such there will be the requirement for the employer to withhold tax from the allowances paid. The resulting impact upon the employee will be a reduction in their net take home pay. Under this treatment the expenses incurred by the employee for personal food and accommodation expenses are not able to be deducted against the taxable allowance provided.

The change in legislation does not apply to employees who have a residence in Australia and are required to relocate within Australia for a period of time (under ‘fly-in, fly-out arrangements).

Whilst legislation has not been passed, the announcement represents the intended law from 1 July 2012. As such, we recommend that the remuneration packages of those employees who are currently receiving a LAFHA and who have transferred from an overseas country to Australia be reviewed. Employers will need to consider the impact of this change to the salary package of those expatriate individuals as from 1 July 2012 and manage the changes to salary packages, salary agreements and salary commitments which will result.

If you have any queries in relation to the above please do not hesitate to contact your Walker Wayland representative.