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Dec 12 2011

LAFHA – Living Away From Home Allowance – to be abolished

The popular Living Away From Home Allowance (LAFHA) being claimed by temporary overseas workers in Australia is set to cease from July 2012.

The effect of this is that many people currently claiming this allowance will be in a position of paying more tax than they are used to.

An example of LAFHA in action:

A person on $2,000 per week income, paid as $1,300 salary + $700 in LAFHA, currently pays $285 per week in tax.

After LAFHA is abolished, and assuming the employer reverts back to the $2,000 salary the tax will become $538 per week

An EXTRA $253 per week in tax.

Quoting from the official Press release:

This tax exemption (LAFHA) is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.

Rorting of this tax exemption was one of the issues raised at the Tax Forum, and has seen the total amount of tax-free living-away-from-home allowance reported by employers to the Australian Taxation Office increase from $162 million in 2004-05 to $740 million in 2010-11.

and

No permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.

These reforms will not affect other tax concessions, such as those that apply to travel and meal allowances, and remote area fringe benefits.

The reforms will apply from 1 July 2012. This start date will enable the Government to undertake an extensive consultation process on these reforms, so appropriate transitional arrangements can be put in place, including in regional Australia.

Full copy of the relevant Press Release:

The Gillard Government announced a number of measures as part of the Mid-Year Economic and Fiscal Outlook that build on ideas discussed at last month’s Tax Forum.

Fringe benefits tax (FBT) reform – Living-away-from-home allowance and benefits.

The Government will introduce reforms to stop individuals from being able to exploit the tax exemption for living-away-from-home allowance and benefits.

This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.

Rorting of this tax exemption was one of the issues raised at the Tax Forum, and has seen the total amount of tax-free living-away-from-home allowance reported by employers to the Australian Taxation Office increase from $162 million in 2004-05 to $740 million in 2010-11.

Under reforms announced today:

  • access to the tax exemption 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; and
  • individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.

No permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements.

These reforms will not affect other tax concessions, such as those that apply to travel and meal allowances, and remote area fringe benefits.

The reforms will apply from 1 July 2012. This start date will enable the Government to undertake an extensive consultation process on these reforms, so appropriate transitional arrangements can be put in place, including in regional Australia.

These changes will ensure that a level playing field exists between temporary residents and permanent residents, and that Australian taxpayers are not funding the unfair exploitation of concessions.

This reform progresses recommendation 9(c) of the Australia’s Future Tax System Review, and will provide savings of $683.3 million over the forward estimates.

Source: www.treasurer.gov.au/doc=pressreleases

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