Mid-Year Economic and Fiscal Outlook - 22 October

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Last week the Federal Government released exposure draft legislation to implement reforms to the tax concession for living–away–from–home allowances (LAFHAs) and benefits as announced in the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) and the 2012-13 Budget. These reforms, which represent significant employment policy and procedural changes, are summarised as follows: From 1 July 2012, LAFHAs will constitute assessable income of the employee. The direct provision of, or reimbursement of food and accommodation by employers to employees who are living away from home will still fall within the FBT net.An employee will only be eligible for an income tax deduction against the assessable LAFHA (or the employer eligible to apply the 'otherwise deductible rule') where:the employee maintains a usual place of residence in Australia for their personal use or enjoyment at all timesthe expenses incurred are reasonable and, for food, beyond a statutory threshold, andthe living away from home period at a particular work location has not exceeded 12 months.Transitional relief will be available where there was an existing employment arrangement to provide LAFHAs or benefits prior to Budget night. These will apply from 1 July 2012 until the earlier of 30 June 2014 or the time the 'eligible' employment arrangement is varied or renewed. The transitional rules apply as follows:for temporary or foreign residents: you ignore the 12 month limitation, orfor everybody else: you ignore the requirements to maintain a usual place of residence in the former location and the 12 month limitation.Broadly and practically speaking:living away from home concessions for temporary residents are eliminatedsalary sacrifice arrangements for living away from home concessions (other than certain home leave, overseas employee children education costs and relocation expenses) will cease to be attractive, andliving away from home concessions for Australian residents will be phased out by 1 July 2014, with ongoing concessions limited to specific scenarios where duplicate expenses are being incurred.Given the new legislation will be effective from 1 July 2012, employers need to promptly consider the following:Determine what living away from home benefits will continue to be provided and which will be phased out (including consideration of employment contractual and Award/EBA obligations and agreement on employee compensation arrangements, if any).Communicate these changes to employees.Update policies and procedures regarding availability and approval of such benefits.Determine which employees are eligible for transitional arrangements and 'preserve' those arrangements.Implement changes to your payroll system and processes to reflect the shift from FBT to the PAYG withholding system (recording/withholding/remitting/reporting).Keep your eyes open for further administrative guidance from the ATO (as noted in the Media Release)Please ensure you forward this information on to your Human Resources team should you believe your business to be affected.

Exposure Draft and Explanatory Memorandum Treasury Summary of Changes