Since 1 October 2012, most living away from home benefits provided to Australian employees have become taxable to the employer.
The previous position
In the past, Living Away From Home (LAFH) allowances and related benefits for accommodation and extra food costs have been a common element of employee remuneration packages due to their exemption from both income and fringe benefits tax. In most cases, these benefits will now become taxable. Employers may need to restructure their remuneration arrangements to avoid this adverse tax impact.
A LAFH allowance is an allowance paid by an employer to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from his usual place of residence in order to perform his employment duties. The allowance is intended to cover reasonable accommodation and additional food and drink expenses. The Australian government has become concerned that the concessionary tax treatment was being abused, which was causing a significant and growing drain on government revenues.
The new position
Since 1 October 2012, most LAFH allowances and benefits have become taxable as a fringe benefit. There will be limited circumstances in which tax concessions will still apply. These will essentially be limited to “fly-in, fly-out” (or “drive-in, drive-out”) workers, or where employees are maintaining two homes in Australia for a period of up to 12 months. The increased tax burden may fall on the employer where packages are not able to be restructured.
There are limited transitional arrangements until 1 July 2014 for arrangements existing at 8 May 2012, but these transitional concessions may be lost if the employment arrangements are altered prior to 1 July 2014. Further, these transitional arrangements only apply to permanent residents of Australia or temporary residents maintaining a home in Australia. For many expatriates, the new rules will apply from 1 October 2012.
What this means for employers
Many employers and employees may need to restructure their employment arrangements urgently to take account of the new rules. Employers should also be aware of making changes to existing employment arrangements which are able to utilise the transitional arrangements, as any changes could jeopardise the on-going availability of the transitional concessions.