Australia: Legislation Tabled on Reform of Living-Away-from-Home Regime
On 28 June 2012, Australia’s federal government introduced the Tax Laws Amendment (2012 Measures No.4) Bill 2012 to the Parliament and released the accompanying explanatory memorandum (EM) outlining the legislative changes to the living-away-from-home (LAFH) regime. One key difference is that the legislation states the changes will now apply from 1 October and not 1 July as previously announced.
The legislation had previously been released as an exposure draft on 15 May 2012 and subject to a consultation period. Our comments in this newsletter specifically focus on the changes made subsequent to the exposure draft and now included in the Bill.
The Bill contains some variations to the exposure draft as previously released. Although most changes impact the mechanics of the legislation, the key change is the three-month deferral of the commencement date to 1 October 2012. This will have a significant impact on employers who have already communicated the changes to employees and made the necessary payroll adjustments ahead of the previously announced 1 July 2012 commencement date.
Summary of Changes
The following changes to the exposure draft have been incorporated into the Tax Laws Amendment (2012 Measures No.4) Bill 2012:
• The amendments to the living-away-from-home allowance and benefit rules will now apply from 1 October 2012, as opposed to the originally announced commencement date of 1 July 2012.
• The ‘ordinary weekly food and drink expenses’ for a seven-day period has been reduced from $110* to $42 for each adult, and from $55 to $21 for each child under the age of 12 living with the employee. * Australian dollars
• That portion of a LAFH allowance which represents the ‘ordinary weekly food and drink expenses’ of the employee (i.e., $42 per week for an adult) will be considered a fringe benefit and subject to Fringe Benefits Tax (“FBT”) where the employee provides his or her employer with a declaration.
• The EM now contains further clarification regarding what constitutes a material variation to an existing employment arrangement for the purposes of the transitional provisions. The EM confirms that a change in salary constitutes a material variation, triggering the commencement of the new provisions.
• The government had not indicated prior to the introduction of the legislation in Parliament that the commencement date would be deferred to 1 October 2012. In his press release, David Bradbury MP, the Assistant Treasurer, stated that the “deferral will give employers and employees more time to prepare for the new arrangements.”
• However, most employers may have already communicated the changes to employees and made the necessary changes to the provision of living-away-from-home benefits ahead of the original 1 July 2012 commencement date. Those employers will now need to consider whether they temporarily reinstate LAFH benefits for the period prior to 1 October 2012. It is likely there will be considerable pressure from employees for such benefits to be reinstated.
• The interpretation of a “variation” to the existing employment arrangement for the purpose of the transitional arrangements (which applies to Australian citizens / permanent residents) is very broad. Given that the EM now defines this to include a salary adjustment, it is unlikely that many employees will be able to utilize the transitional provisions for any reasonable length of time. For example, employees with a 1 July salary review who may have previously met the necessary conditions for the transitional provisions will no longer be eligible. There is the potential under the legislation as it currently stands for such an employee to be economically better off without a pay rise where they remain entitled to receive LAFH benefits.
• Further clarity is yet to be provided regarding what will be considered “reasonable” for the purposes of the food allowance. Given that the statutory food amount has reverted back to the amount as currently exists, it is possible that reasonable food amounts as listed in the living-away-from-home allowance LAFHA determination (TD 2012/15 dated 28 March 2012) by the Australian Taxation Office (ATO) will stand.
• We are also yet to receive further clarity regarding the application of the withholding provisions. The Budget night press release confirmed that an ATO class variation would be issued.
The Bill will now undergo review in the House of Representatives and the Senate, during which time it may be subject to amendment. Once the Bill has been passed by Parliament, and is signed by the Governor-General (“Royal Assent”), it becomes law.