The Treasurer, Wayne Swan, announced changes to the Living Away from Home Allowance (LAFHA) rules during the mid-year Budget as part of a package of measures aimed at boosting government revenue. Also announced at the time was an increase in the super guarantee payable by employers from 9% to 13% (to be phased in over a number of years) and company directors becoming personally liable for any unpaid superannuation which we covered in a previous newsletter.

Although currently under consultation, it is anticipated the new rules will come into force on 1 July 2012. Under these proposed changes, LAFHA will only be available in limited circumstances.

Currently Living Away from Home Allowances are widely used by temporary visa holders as compensation for the additional costs of working and living in Australia.

If an employer covers the cost of accommodation and food costs while the employee is temporarily working away from their usual residence, LAFHA allows them to include these costs in their salary package as tax free income which increases their take home pay. It is for this reason a temporary visa holder (i.e. 457 visas) with an overseas home, is able to benefit from the significant tax savings in Australia. Offering LAFHA is also cost neutral for employers as LAFHA is not subject to Fringe Benefits Tax (FBT) and is a way of ensuring employers remain competitively placed in a market where there is a shortage of employees with key skills.

For most individuals and families who are temporary residents and claim LAFHA at present, these changes will mean a significant decrease in net take home pay.

Until the changes come into effect from 1 July 2012, temporary visa holders can continue to benefit from the current LAFHA rules and the tax savings. After this date, the impact of the limited availability of LAFHA will be significant.

Going forward employers will need to carefully consider the benefits alternative visas (other than temporary visas) may present to attract and retain key workers. They will also need to be more resourceful and consider other avenues to enhance an employee’s salary package.

Seeking professional advice early on, before the employee’s visa and salary package has been finalised, is more important than ever before.  

Editorial Compliments of UHY Haines Norton Accountants