The Assistant Treasurer on Tue 15.5.2012, released draft legislation proposing to implement reforms to the tax concession for living-away-from-home allowances (LAFHA) and benefits as announced in the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) and the 2012-13 Budget. The Government said it is reforming the tax concession “by better targeting it at people who are legitimately living away from their actual home in Australia (which they continue to maintain) for an initial period.”
The draft Bill proposes to amend the FBTAA and the ITAA 1997 to reform the taxation treatment of LAFHA and benefits to:
- treat LAFHA as part of an employee’s assessable income rather than as fringe benefits;
- better target the concessional treatment by allowing an income tax deduction:
- to employees who maintain a home in Australia for their own personal use and enjoyment at all times while required to live away from home for their work;
- for reasonable expenses incurred and substantiated for accommodation and food beyond a statutory amount;
- for a maximum period of 12 months in respect of an individual employee for a particular work location;
- employers will be taxed on LAFH fringe benefits (direct provision of accommodation and food) provided to employees who would not be eligible to claim an income tax deduction had they incurred the expenses directly.
The changes are proposed to apply from 1 July 2012. There are specific transitional provisions concerning permanent residents and temporary residents with employment arrangements in place prior to 7:30pm (AEST) on 8 May 2012 – broadly, the changes are proposed to apply from the earlier of 1 July 2014 or the date a new employment arrangement is entered into.
The Government said the ATO proposes to put in place a class PAYG withholding variation so employers do not have to withhold tax from a LAFH allowance where the employee is expected to incur deductible LAFH expenses up to or in excess of the allowance paid. A class variation will be subject to the other requirements of the proposed law being met. Further, it added that withholding will still be required where the employee is not expected to incur expenses up to the amount of the allowance provided.
The draft Bill and explanatory material are available on the Treasury website.
COMMENTS are due by 29 May 2012.
Source: Assistant Treasurer’s media release No 029, 15 May 2012
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