The Bill containing changes to the concessional tax treatment of Living Away from Home (LAFH) allowances and benefits has received Royal Assent on 28 September 2012.
The LAFH allowance or benefit arises when an employer has paid an employee an allowance to live away from home for work purposes or provides a direct benefit to an employee such as paying for the employee's accommodation or reimburse an employee's living expenses.
Whether you are an employer who provides the LAFH allowance or benefit or an employee who receives such an allowance or benefit, you need to be aware of these changes.
The changes maintain the fringe benefits tax (FBT) treatment of both LAFH allowances and benefits. This is a reversal of the Government's earlier announcements to treat LAFH allowances as assessable income of the employee and some food and drink expenses as fringe benefits.
Although LAFH allowances and benefits will remain within the FBT net, the concessionary tax treatment for these types of payments will be restricted.
The main features of the changes are:
A new requirement that employees must maintain 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;
Concessions are only available for 12 months for a particular employee in a particular location with a particular employer;
Employees who are working on a fly-in fly-out (FIFO) or drive-in drive-out (DIDO) basis do not need to maintain a usual place of residence within Australia (e.g. where an employee retains a non-Australian home or lives with family when they are not working).
These amendments generally take effect from 1 October 2012 rather than 1 July 2012 as previously proposed. However, transitional relief can apply to employees who are permanent residents and temporary or foreign residents who meet the following requirements:
The employee had an employment arrangement for LAFH allowances and benefits in place prior to 7:30 pm (AEST) on 8 May 2012 (Budget time);
The arrangements were not materially varied or renewed between Budget time and 1 October 2012; and
If the employee is a temporary or foreign resident, they are maintaining a home in Australia for their immediate use and enjoyment at all times.
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 between 1 October 2012 and 1 July 2014, the new rules apply from the date of the change or renewal.