New LAFHA Regime Kicks In From 1 October 2012

The new legislation containing changes to the current Living Away From Home Allowances (“LAFHA”) regime was recently passed. For employers with LAFHA arrangements entered into after 8 May 2012, the new rules will apply from 1 October 2012.
The new rules require the following from the employers and/or employees:

  • LAFH allowances and benefits are to be taxed only in the FBT system. The previous provisions in the draft legislation of taxing allowances through the income tax acts have been scrapped.
  • The concessional tax treatment of LAFH allowances and benefits is limited to employees who maintain a home in Australia for their own use at which they usually reside.
  • Employees must be able to substantiate expenses incurred on accommodation, and food or drink beyond the Commissioner’s reasonable amount. The reasonable amount of food component for the fringe benefits tax (FBT) year commencing 1 April 2012 is $250/week for an adult[2] plus $150 for each additional adult and $75 for each additional child[3].
  • The concessional treatment is limited to a period of 12 months for an employee at a particular work location.
  • Employees must provide the employer with a declaration relating to living away from home.

The new rules are not intended to materially affect employees who are working on a fly-in fly-out or drive-in drive-out basis. There is no requirement to maintain a home in Australia and the concession is not limited to a period of 12 months for these employees.  However, they still have to substantiate expenses incurred on accommodation, and food or drink (beyond the Commissioner’s reasonable amount), and provide the employer with a declaration relating to living away from home.
For employers with current LAFHA arrangements entered into before 8 May 2012, transitional rules will be available so that the new rules will not apply until after 30 June 2014 provided there is no material change to the existing employment agreements.
Permanent residents of Australia can ignore the requirement to maintain a home in Australia during this period, whilst temporary residents and foreign residents cannot.