Australia: Parliamentary Committee Recommends Changes to LAFH Reform
On 15 August 2012, the House Standing Committee on Economics presented its “Advisory report” following its inquiry into Schedule 1 of Australia’s Tax Laws Amendment (2012 Measures No. 4) Bill 2012, which relates to changes to the taxation treatment of living-away-from-home (LAFH) allowances and benefits.1
The legislation was introduced to the House of Representatives on 28 June 20122, and was subsequently referred to the House Standing Committee on Economics (the Committee).
Our comments in this newsletter specifically address the recommendations made by the Committee in the Advisory report.
The recommendations of the Committee are currently subject to review by the government. It is important to note that the government is not obligated to implement any of the recommendations of the Committee.
Should the government determine that the proposed legislation requires amendment, it is likely such an amendment would occur next week during debate of the Bill, prior to its being passed by the House of Representatives.
As the Opposition has indicated that it will not oppose the Bill, we would expect that passage of the Bill through the Senate would occur quickly thereafter, and prior to the previously stated commencement date of 1 October 2012.
Summary of Recommendations Made by the Committee
We outline the pertinent recommendations of the Committee below:
• The government provides “as a matter of urgency a clear and inclusive definition of what constitutes a ‘material variation to a contract’.”
• Treasury should provide a clear definition as to what constitutes an ‘ownership interest’ and the satisfactory retention of an employee’s usual place of residence. The Committee “believes that the definition of ‘ownership interest’ should take into account the varied living arrangements that effectively constitute a person’s primary residence.”
• “Drive-in drive-out” (DIDO) workers who use their own vehicles should be subject to the same treatment as DIDO workers who use employer-provided transport.
• The definition of fly-in/fly-out (FIFO) and DIDO workers “should include those who do not meet the test of maintaining a usual place of residence within Australia,” including temporary residents.
• Treasury should clarify the circumstances in which the 12-month time limit will be paused (for example, a short-term return to the home location) with a view to “providing the greatest level of simplicity and certainty while also achieving the policy intent of the time limit.”
• LAFH allowances should be treated within one taxation system. The committee supported retaining the taxation treatment of LAFH allowances in the FBT (fringe benefits tax) system.
• Prior to the implementation of any changes to LAFH benefits, the “… Government must provide clear and concise documentation outlining the new compliance obligations for employers and employees.”
The Committee has recognized certain issues arising with the legislation and associated commentary in its current form.
In particular, we welcome the recommendation to treat LAFH food allowances as either fringe benefits or as taxable to the individual (not a mixture of both, as exists in some circumstances under the proposed legislation). Given the lack of clarity regarding the withholding obligations where the allowance is taxed to the individual, shifting LAFH allowance back to the FBT system in full may reduce the overall compliance burden for employers at this stage. This would also be consistent with the government’s intent of not further complicating the tax system for individuals.
The Committee’s recommendation that the government inclusively define a ‘material variation’ to a pre-existing employment arrangement has failed to address the key issue on this point which is that the legislation as currently drafted does not refer to a material variation. Nevertheless, additional clarity regarding this issue is necessary in order for employers to be confident in providing LAFH benefits to employees under the transitional arrangements.
The recommendation regarding extending the concession to FIFO and DIDO workers who do not maintain a usual place of residence within Australia is also welcome.