Australia: Plans for Living-Away-from-Home Benefit
The Australian government proposes1 to introduce the following measures to address the use of the tax exemption for living-away-from-home (“LAFH”) allowances and benefits:
• access to the tax exemption for temporary residents (foreign nationals on a temporary visa) will be limited to those who maintain a residence for their own use in Australia, in which they are living away from home for work purposes, such as ‘fly-in fly-out’ workers;
• individuals will be required to substantiate their actual expenditures on accommodation and food beyond a statutory amount.
The proposals will apply to all new and existing arrangements from 1 July 2012.
The proposed changes will significantly limit the availability of LAFH benefit tax concessions for foreign nationals who are working on temporary assignments in Australia. Access to the LAFH benefits for foreign nationals will be limited to those employees who maintain a home for their own use in Australia (the home must be available at all times and not be rented out) and are required to live away from that home for employment, i.e., fly-in-fly-out arrangements within Australia.
This means that, effectively, very few foreign nationals will be eligible to receive LAFH benefits tax concessions from 1 July 2012, and those who receive such benefits will be taxed on the allowances, or their employer will be liable for Fringe Benefit Tax (“FBT”) on the benefits.
Australian Citizens and Permanent Residents
Access to LAFH benefits will continue for Australian citizens and permanent residents, with no equivalent requirement to maintain a home for their use. However, all such employees will now be required to substantiate food and accommodation costs in order to access the tax concessions. (No documentation will be required for food expenses that are below a statutory amount yet to be defined).
LAFH allowances will now be taxed as income to the individual, while reimbursements of accommodation and food expenses will continue to be taxed as employer fringe benefits. An income tax deduction for the individual or FBT exemption for the employer will be available for citizens and permanent residents provided the accommodation and food costs can be substantiated.
Temporary residents who maintain a home in Australia but are required to live away from that home will be eligible for the same concessions.
KPMG Note: Impact for Employers with Foreign Nationals Working in Australia
The proposed changes will increase the cost of employing foreign nationals in Australia. Employers should consider the following:
• Employers should identify the foreign nationals who have been provided with LAFH benefits who will no longer be eligible for tax concessions from 1 July 2012, and what LAFH benefits have been provided.
• Employers should review existing assignment/employment contracts provisions to determine whether the employer or employee will be responsible for the additional tax liability.
• Employers should review assignment cost projections for assignments extending beyond 1 July 2012, to determine additional costs are being captured.
• Employers will need to communicate the proposed changes to affected employees and determine how the company will address the additional tax costs associated with the provision of existing LAFH benefits. Where the additional cost will fall on the employee, employers should consider how to manage any consequences for the individual and their ongoing assignments.
• Employers should also determine any additional payroll tax and Superannuation Guarantee implications and costs that will arise on LAFH benefits that do not qualify for the tax concessions.
The government released a consultation paper which outlines the existing treatment of the living-away-from-home benefits and implementation issues of the reform, including whether there is a need for special transitional arrangements to make sure there are no unintended consequences with the new arrangements.
The consultation paper is available on the Treasury Web site (http://www.treasury.gov.au).
The closing date for submissions on the proposed reform is 3 February 2012.