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In the Federal Budget handed down Tuesday evening (8 May 2012),
the Treasurer has released further details with respect to the
proposed reforms on Living Away From Home Allowance (LAFHA).
The transitional rule will only apply to
permanent residents who entered into arrangements prior to 7:30pm
(AEST) on 8 May 2012.
On the surface...
The Federal Government will introduce transitional rules for
"arrangements" entered into prior to 7:30pm 8 May
2012.
The transitional rules will see these pre-existing
"arrangements" not subject to the proposed measures until
1 July 2014, meaning that employees currently eligible to claim
concessions in respect of LAFHA will be able to do so until 30 June
2014, as long as they are still considered to be living away from
home.
However, these transitional rules will only apply to permanent
residents.
Temporary residents will not qualify for the transitional rules
even if they have existing arrangements in place prior to 7:30pm
(AEST) on 8 May 2012.
The "catch" to the proposed reforms is that a time
limit of 12 months will apply for an individual employee for any
particular work location, regardless of whether the individual
employee is a temporary resident for Australian tax purposes.
Further the Federal Government has maintained that the reforms
will not apply to fly-in-fly-out arrangements or travel
allowances.
Devil is in the details...
We spoke to Treasury yesterday afternoon (9 May 2012) to seek
further clarifications regarding the application of the
transitional rules, particularly for employees who are considered
temporary residents of Australia for tax purposes.
The response received from Treasury appears to be somewhat
different to prevalent interpretation of the transitional
rules.
A temporary resident with a pre-existing "arrangement"
prior to 7:30pm 8 May 2012 will still be required to maintain a
home in Australia that is available for their own personal use and
enjoyment at all times and is required to live away from that home
for work-related purposes. The transitional rules will not
apply.
According to Treasury, the transitional rules are primarily
aimed at permanent residents, and effectively all employees who are
temporary residents of Australian tax purposes will be subject to
the proposed new rules.
Further, Treasury has confirmed that from 1 July 2012, LAFHA
will no longer be treated as a fringe benefit and is instead as
assessable income taxable in the hands of the employee unless the
individual is maintaining a home in Australia and living away from
that home.
A more detailed analysis will be issued shortly.
Outstanding questions
Some questions remaining as a result of the Federal Budget
include:
The definition of an "arrangement".
There is still no mention of the flow-on impact of these
reforms towards other exempt and concessional benefits which rely
on the concept of living away from home.
What are the Pay-As-You-Go (PAYG) Withholding procedures with
respect to the provision of LAFHA post 30 June 2012?
