LAFHA Living Away From Home Allowance update

Living away from home allowance changes

 

Over the last 6 months or so, the Government has released information on proposed changes to the living away from home allowance (LAFHA) rules. While the changes are not yet law, the main points to be aware of are:

 

  • From 1 July 2012, cash LAFHAs will no longer be taxed to employers under the FBT system. LAFHAs will need to be included in the taxable income of the employee and will be taxed at their marginal tax rates. LAFH benefits that are not paid in the form of a cash allowance (e.g., reimbursement of actual expenses) will still be taxed under the FBT system in the hands of employers.
  • As LAFHAs will be included in the taxable income of employees, the new rules will allow them to claim a deduction for reasonable accommodation and additional food expenses incurred while living away from home if certain conditions are met.  The main condition is that the employee must have a usual place of residence in Australia that is maintained for their personal use and enjoyment while they are living and working in another location (i.e., it cannot be rented out or sub-let while they are away).  Employees will only be entitled to claim deductions against a LAFHA for a maximum period of 12 months in respect of a specific work location (there is an exception for fly in fly out workers).
  • Some transitional arrangements will apply to employees who had LAFHA arrangements in place before 7.30pm AEST on 8 May 2012.  The transitional rules expire on 1 July 2014 or when a new employment arrangement is entered into, whichever is earlier.  The application of these transitional rules will depend on whether the employee is a temporary resident for tax purposes.

 

If you are already providing LAFHA or similar benefits to employees then it’s important to consider the impact of these new rules as soon as possible.  Please let us know if you would like to discuss the changes to these rules in more detail.

 

LAFHA Living Away From Home Allowance

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