Summary
It has taken ten months, two rounds of submissions, a House of Representatives Standing Committee and a false start, but the much feted reforms to the Living Away From Home Allowance (LAFHA) legislation is now awaiting Royal Assent with a commencement date of 1 October 2012.
The amending legislation which passed through the Senate looked, in principle, remarkably similar to the existing legislation, with the exception of tightened eligibility criteria being introduced to limit the categories of employees able to receive LAFHA.
Background
The Federal Government accepted the 9 recommendations made by the House of Representatives Standing Committee on Economics and these recommendations are now reflected in the new legislation.
Key Features
Upon receiving Royal Assent, the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 will include the following key features with respect to LAFHA:
- LAFHA will continue to be taxed under the Fringe Benefits Tax Assessment Act 1986 (FBTAA). It will not be assessable under the Income tax regime.
- The concessional tax treatment of LAFHAs and associated benefits provided to employees will be limited to a maximum period of 12 months, other than those working on a 'fly in fly out' (FIFO) or 'drive in drive out' basis (DIDO), and is subject to the employee:
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- maintaining a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while living away from that home for their work; and
- providing their employer with a declaration about living away from home.
- The exempt accommodation component remains but the employee is now required to substantiate the expense. Any excess of LAFHA over the actual accommodation expenditure will be subject to fringe benefits tax (FBT).
- The exempt food component will remain in place.
- The employee must provide with their employer a LAFH declaration in order for the employer to access the LAFH concessions.
The term 'normal residence' is a new concept and is taken to be:
- the employee's usual place of residence if that is in Australia; or
- if the employee's usual place of residence is not in Australia, either:
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- the employee's usual place of residence; or
- the place in Australia where the employee usually resides while in Australia.
It is intended that by replacing the term 'usual place of residence with 'normal residence', a LAFHA fringe benefit can arise regardless of the location of the employee's usual place of residence.
It should be noted, however, the term 'usual place of residence' still remains in the FBTAA and it will enable the employer to continue to receive concessional FBT treatment in respect of relocation costs.
FIFO and DIDO employees
An employee who is working on a FIFO or DIDO basis would not have to maintain a home in Australia and the 12 month limit on concessional tax treatment does not apply. However, certain conditions must be satisfied in order for an individual to be considered to be a FIFO or DIDO employee.
Transitional rules
The transitional rules have not changed from the initial draft legislation.
Employers will be able to provide employees who are permanent residents with concessionally taxed LAFHA for a period exceeding 12 months, subject to an existing employment arrangement in place prior to 7:30pm (AEST) on 8 May 2012 (Budget time) and there are no material change or renewal of the employment arrangement between Budget time and 1 October 2012.
For employees who are temporary residents, in addition to meeting the conditions imposed on permanent residents, access to concessionally taxed LAFHA is subject to the temporary resident employees maintaining a home in Australia for their immediate use and enjoyment at all times.
As employers should be aware, the transitional rules would apply until the earliest of:
- 30 June 2014; and
- the time the current employment arrangement ends; and
- the time the employment arrangement is first varied in a material way or renewed.
In a positive move, the revised explanatory memorandum to the Bill has provided additional guidance in respect of circumstances which may constitute a material variation to an employment arrangement.
However, a word of caution. The reforms apply generally to employees who are living away from their normal residence on or after 1 October 2012 in respect of all allowances and benefits provided in relation to the periods commencing on or after 1 October 2012 regardless of when the allowance or benefit was received or provided.
For further information regarding the Tax Laws Amendment (2012 Measures No. 4) Bill 2012, please click here.
Moore Stephens will be running a series of seminars regarding the latest on the changes to the LAFHA legislation. The dates are as follows:
Melbourne – Tuesday 25 September 2012
Sydney – Wednesday 26 September 2012
Adelaide – Wednesday 3 October 2012
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