Significant Changes to Living Away From Home Allowance

Jane Cooper 11 December, 2011

The Federal Treasurer in Australia has announced a consultation period in anticipation of what are expected to be significant changes to the Living Away From Home Allowance – or LAFHA – from 1st July, 2012.

By way of background, to date the LAFHA has been available to those who are living away from their “usual place of residence.” Those who can satisfy this requirement – and, importantly, who work for an employer who is agreeable – are able to tax efficiently salary package what often amount to significant sums, including the cost of rented accommodation while they are living away from their usual residence.

Also available under the LAFHA are:

  • Travel expenses from the permanent residence outside Australia to the new (temporary) location in Australia.
  • Connection or reconnection of gas, electricity and telephone services to the new home in Australia.
  • The costs of removal, storage, packing, unpacking and insurance of household effects, including pets.

Subclass 457 visaholders have typically been able to secure the LAFHA from employers on the basis that they would be returning to their usual place of residence in their home country once the period of work in Australia ends.

The Treasurer is proposing that:

  • Permanent resident employees will be able to claim an income tax deduction for expenses incurred on accommodation and food – provided they can substantiate the claims.
  • The same rules will apply for temporary residents, although they will have to maintain another home in Australia.

Temporary residents who do not maintain another home in Australia will be required to include the LAFHA in their assessable income. However, they will not be entitled to a deduction for living away from home expenses, which will effectively cause the LAFHA to cease to be a tax efficient element of a salary package.

Indeed, we anticipate that the only temporary visaholders who will be in a position to secure the LAFHA from the start of July 2012 will be those who work for their employer on a fly in-fly out basis.

Employers in Australia seeking skilled labour via the 457 visa program are likely to face an increase in the cost of employing skilled workers from overseas, and in the global context to encounter more difficulties securing the employment of internationally mobile skilled workers.

Furthermore, in the absence of transitional measures to protect those who are already working in Australia with the LAFHA included within a salary package there is a risk that skilled individuals already working in Australia on 457 visas will depart Australia unless they are suitably compensated for the tax that will become payable on the LAFHA.

Comment: In view of the Australian Federal Government’s stated intention of returning the Budget to surplus by 2013 we consider that the prospects of meaningful changes to the proposed amendments following the consultative process are remote at best. Nevertheless, we encourage all who are affected by the proposal – employers as well as employees – to make their views known to the Federal Government. These proposals are at odds with an objective of making Australia an attractive location for international business.

Click here for the Consultation Paper – Living Away From Home Allowance.