Latest updates have confirmed that there will be no transitional rules available to temporary residents currently receiving LAFHA. All temporary residents who are not maintaining a home in Australia (that they are living away from), will lose access to the concession as of 1st July 2012. ***The final position will be confirmed on 29 May 2012 (although it appears to be a fait accompli!
The Government has also confirmed:
- Permanent residents who have LAFHA arrangements in place prior to 7:30 (AEST) 8th May 2012 can continue under the old rules until 1st July 2014. Unlike new arrangements, they are not required to maintain a home in Australia and the concession will not be limited to a maximum of 12 months. However;
- The requirement to substantiate expenditure against the allowance will come into effect 1st July 2012 for ALL employees.
- To facilitate the substantiation requirement, the administration of the allowance will transition to the income tax system. This will have the following consequences:
- 1. The allowance will be assessable income to the employee and reported on their year-end payment summary;
- 2. Provided the eligibility criteria is met, the employee will be able to deduct expenditure for accommodation and food on their income tax return;
- 3. Only food expenses in excess of $110 per adult and $55 per child (under 12) will be deductible;
- 4. To relieve the compliance burden, substantiation for food expenses will not be required unless the expenses exceed an amount specified by the Commissioner (amount yet to be specified);
- 5. Accommodation expenses can be substantiated by lease agreements, mortgage documents or other accommodation receipts.
Employees applying for LAFHA from 8 May 2012
The reforms will apply from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012. This means that if you sign up to receive LAFHA from now on, you will need to meet the new eligibility criteria outlined in the reforms. Key changes to the legislation and what it means for employees are outlined below:
Reform #1
Announced in 2012-13 budget – Transitional arrangements apply (temporary residents please note reform 4)
Limiting access to LAFHA to those who maintain a home for their own use in Australia that they are living away from for work
What it means:
All residents (both permanent and temporary) will be required to demonstrate that the home that they are living away from is maintained for their own personal use. Renting out an owned home, or cancelling the lease of the premises at the home location is likely to fail the ‘maintained for personal use’ criteria.
Reform #2
Announced in the 2012-13 Budget – Transitional arrangements apply
The tax concession to be provided for a maximum period of 12 months in respect of an individual employee for any particular work location.
What it means:
The concession can only be accessed for a maximum period of 12 months for any particular work location. This is an additional proposal to the initial reforms announced late last year.
Reform #3
Announced in the 2011-12 MYEFO – No transitional arrangements apply
Individuals are required to substantiate their actual expenditure on accommodation, and food beyond a statutory amount.
What it means:
Current legislation allows the allowance to be calculated based on a ‘reasonable’ amount. This is regardless of whether the amount is actually being incurred and expensed by the employee. This change will ensure that whilst the amount remains reasonable, it also represents the actual expense incurred by the employee in living away from home.
Reform #4
Announced in the 2011-12 MYEFO – No transitional arrangements apply
Limiting access to the tax concession for temporary residents to those who maintain a home for their own use in Australia that they are living away from for work.
What it means:
Temporary residents will no longer have access to the concession unless they can establish that they are living away from an Australian based home which is maintained for their personal use. This reform is similar to reform #1 however is specifically targeted at temporary residents and unlike reform #1, it contains no transitional arrangements.
Where transitional arrangements are allowed, the reform will apply from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012, and from 2014 for arrangements entered into prior to that time.