The Government has announced changes to the FBT treatment of Living Away From Home benefits.  What are the changes and what do they mean for you?

In principle, employees should pay for their housing and food costs out of income that has already been taxed. That is how most Australians currently pay for their rent and food costs.

However, the tax system currently assists some people who are living away from home with their accommodation and food expenses. The employer usually does not have to pay FBT on such expenses and the employee doesn’t pay income tax on cash provided for those purposes.

Living Away From Home Allowance (LAFHA)

A LAFHA is an allowance you (the employer) pay to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from their usual place of residence in order to perform their employment-related duties.

Change to Tax on LAFHA – 12 Month Limit

The tax concession can only be accessed for a maximum period of 12 months in respect of an individual employee for any particular work location.

 

What it means for YOU (the employer)

You can only receive a tax concession for LAFHA payments for 12 months. You may pause the 12 month period if the employee returns to their normal home when taking leave, such an annual, long service or sick leave.

 

Arrangements entered into BEFORE 

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

Current rules will continue to apply until 1 July 2014

Current Rules will continue to apply until 1 July 2014

 

Arrangements entered into AFTER

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

The changes will be effective
1 October 2012

The changes will be effective
1 October 2012

 

Additional Expenses

The term “additional expenses” does not include expenses the employee would be entitled to claim as an income tax deduction. The aim of the allowance or benefit is to compensate for additional expenses and other disadvantages suffered because an employee is required by the employer to live away from their normal residence.

Usual place of residence

An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place if they did not have to work temporarily in a different locality. The residence does not have to be the employee’s permanent place of residence.

Employees who move to a new locality with an intention to return to their old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

Change to Tax on LAFHA – Must Maintain a Home for Personal Use

Limit access to LAFHA to those who maintain a home for their own use in Australia that they are required to live away from.

 

What it means for YOU (the employee)

All residents (both permanent and temporary) will be required to demonstrate that the home that you are living away from is maintained for your own personal use.

  • It must be available for your immediate use and enjoyment at all times while you are living away from it
  • You expect to resume living at that home when you return

Note: Generally adult children who live in a family home do not have ownership interest in the home.

In order for your home to be available for your immediate use and enjoyment at all times you:

  • Cannot rent out or sub-let the home while you are living away from it;
  • Must incur the ongoing costs of maintaining the residence such as mortgage, rental payments, rates etc; and
  • Must be able to return to your home at any time to take up immediate occupancy.

 

Arrangements entered into BEFORE 

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

Current rules will continue to apply until 1 July 2014

n/a (see below)

 

Arrangements entered into AFTER

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

The changes will be effective
1 October 2012

The changes will be effective
1 October 2012

 

Change to Tax on LAFHA – Temporary Resident Restriction

Temporary residents will no longer have access to the concession unless they can establish that they are living away from an Australian-based home which is maintained for their personal use.

 

What it means for YOU (the employer)

You will pay fringe benefits tax on the full amount of the LAFHA if your employee:

  • Does not maintain a home in Australia
  • Is not working on a fly-in fly-out or drive-in drive-out basis.

 

What it means for YOU (the employee)

You will have a reportable fringe benefit shown on your payment summary. Amounts that are reportable fringe benefits are used to determine your entitlement to certain income-tested tax concessions and liability for income-tested obligations for the year.

Arrangements entered into BEFORE 

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

n/a

The changes will be effective
1 October 2012

 

Arrangements entered into AFTER

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

The changes will be effective
1 October 2012

The changes will be effective 1 October 2012

 

Taxable Value of LAFHA Benefit

The taxable value is the amount of the allowance paid, less either or both of the following:

  • Exempt Food Component
  • Exempt Accommodation Component

 

Exempt Food Component

The food component is compensation for expenses the employee could reasonably be expected to incur on food and drink.

The amounts listed below are acceptable as a reasonable food component without substantiation.

 

Reasonable food component $ per week

2012-13

2011-12

One Adult

$ 250

$ 233

 

It is assumed that expenditure on food at the employee’s usual residence is ordinarily $42 a week for each adult and $21 a week for each child. These rates make up the statutory food amount.

Remember a LAFHA is an allowance you (the employer) pay to an employee to compensate for additional expenses i.e. what you reasonably pay on food less what you’d ordinarily pay for food.

To structure the arrangement so that no FBT is payable you should not pay an employee more than $208 per week i.e. $250 Reasonable Food Component less $42 Statutory Food Amount in the 2013 FBT Year (or $191 in the 2012 FBT year).

Exempt Accommodation Component

Where the allowance paid includes an amount for accommodation which is not reasonable, that part of the allowance will be included in the taxable value of the LAFHA.

 

Change on Tax on LAFHA – Must Substantiate Expenditure

Individuals are required to substantiate their actual expenditure on accommodation and food beyond a statutory amount. Current legislation allows the allowance to be calculated based on a reasonable amount. This is regardless of whether the amount is actually being incurred and expensed by the employee. This change will ensure that whilst the amount remains reasonable, it also represents the actual expense incurred by the employee living away from home.

What it means for YOU (the employee)

Any food and drink expenses you incur while living away from home only needs to be substantiated where the expenses exceed an amount considered to be reasonable by the Commissioner.

If your food and drink expenses exceed the reasonable amount, you must be able to substantiate the full amount of these expenses, not just the excess amount.

The full amount of your accommodation expenses you incur must be substantiated by lease agreements, mortgage documents or other accommodation receipts.

 

 

Arrangements entered into BEFORE 

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

The changes will be effective
1 October 2012

The changes will be effective
1 October 2012

 

Arrangements entered into AFTER

7:30pm (AEST) on 8 May 2012

Permanent Residents

Temporary Residents

The changes will be effective
1 October 2012

The changes will be effective
1 October 2012

 

LAFHA Declaration

To reduce the LAFHA by the exempt accommodation component and/or the exempt food component, you must obtain a declaration from the employee. The declaration must set out the following details:

 

  • The address of the place in Australia where the employee normally lives
  • The address of the place, or places, where you resided while living away from home; and

A statement that you have satisfied the requirements of maintaining a home in Australia for that place in Australia.

 

Have Questions?

If you have any questions about the FBT Reform or LAFHA changes, please contact your Accountant at Leader Accountancy and let us know.

 

Share This