Changes to Benefits for Australian Temporary visa holders beginning 1 July 2012

The Australian Treasurer Wayne Swan announced changes to the Living Away from Home Allowance (LAFHA) as part of the Mid-year Economic and Fiscal Outlook 2011-12.

LAFHA is an allowance paid to the employee to cover the additional costs of living away from home while performing employment related duties. There are typically three elements to a LAFHA; accommodation, food, and hardship. LAFHA is widely used by temporary residents to boost their take-home pay.

From 1 July 2012, LAFHA can only be claimed by employees who already have a home for their own use in Australia; Employees will only be able to claim LAFHA while working away from their Australian home. Under the current LAFHA system, many 457 holders claim LAFHA on the basis that they usually reside overseas and are working in Australia on a temporary basis.

These allowances are currently not taxable to the employee and are generally exempt from Fringe Benefits Tax. But under the new reforms, for those without an Australian home, accommodation and food will be included as an assessable allowance to the employee. Therefore this allowance will be taxable to the employee and there will be the requirement for the employer to withhold tax from the allowances paid. The resulting impact upon the employee will be a reduction in their net take home pay.

"The Government will introduce reforms to stop individuals from being able to exploit the tax exemption for living-away-from-home allowance and benefits," the Swan said. "This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers."

This means the tax concessions will be maintained for all workers living in Australia who are
required to work elsewhere in Australia to cover expenditure on food and accommodation while working away from home.

"This start date will enable the Government to undertake an extensive consultation process on these reforms, so appropriate transitional arrangements can be put in place, including in regional Australia," Swan added.

Small businesses are concerned the government's planned changes to living away from home allowances for temporary workers could victimise employees.

"What the Government is doing is addressing a situation where big corporations are paying people hundreds of thousands of dollars and it's mostly executives," said Robert Evans, chief executive of IT services group Velrada, which sources a significant number of staff from overseas."I can understand why that would be an issue, but for most of the folks we have here, it's going to be a problem when they do something on that big a scale."

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