By Stuart Jones

The Government’s proposed changes to the Living-away-from-home (LAFH) rules from 1 July 2012 will present problems for employers with medium-term arrangements already in place, according to accounting firm PKF. Writing in Thomson Reuters Weekly Tax Bulletin Issue 11 (16 March 2012), PKF Director of Taxation, Lance Cunningham and Kumar Krishnasamy, Partner International Employment Taxation, warn that the proposed LAFH changes will have important implications for existing arrangements as at the date of announcement, 29 November 2011.

Many employers and employees have existing arrangements that will go for a number of years after 1 July 2012 (the proposed introduction date of these changes), says Cunningham and Krishnasamy. In many cases, commercial and personal decisions have been made based on the LAFH concessions being available over the term of the arrangement. The proposal to cease the LAFH concessions for many of these arrangements could have dramatic commercial or personal consequences. PKF warns that many commercial projects may be in jeopardy as a result of budgeted costs being exceeded.

Proposed changes to LAFH rules

In releasing the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) on 29 November 2011, the Treasurer announced, among other things, that the Government intended to amend the Living-away-from-home (LAFH) rules with effect from 1 July 2012. In essence, the Government is proposing that:

• access to the LAFH tax concessions for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as “fly-in fly-out” workers;
• individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount;
• permanent residents will not be affected by these changes, unless they are receiving LAFH allowance or benefit in excess of their actual expenses.

Permanent residents will be able to claim an income tax deduction for accommodation expenses they can substantiate and for food expenses beyond a statutory amount. Temporary residents who maintain a home in Australia for their own use and who are required to live away from that home to perform the duties of their employment will be able to claim an income tax deduction for their actual expenses. Allowances for other temporary residents will be taxed like other forms of income under the income tax system.

Employers who provide other LAFH benefits would continue to be exempt from FBT on those benefits provided to permanent residents and to temporary residents maintaining a home in Australia which they are living away from for their work. Employers who provide direct LAFH benefits to other temporary residents would be liable for FBT on those benefits.