lafha changes spell trouble: non-residents hit hardest 30 august 2012

LAFHA Changes Spell Trouble: Non-residents Hit Hardest

30 August 2012

Overview

• What is a LAFHA?• What are the changes?• How will the changes affect staff?• How will the changes impact visitors?• Visitor Working Group Update• Alternatives for attracting non-residents

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What is a LAFHA?

LAFHA is Living Away From Home Allowance

Background • LAFHA is an allowance that is taxed under the

Fringe Benefits Tax Assessment Act 1986• An employee needs to temporarily relocate for work• The amount paid is to compensate for the

additional expenses of living away from home for work

What is a LAFHA?

• Food (ATO) components of a LAFHA are exempt from tax

• Reasonable accommodation costs are also exempt from tax

• Home could be anywhere in the world• Do not have to maintain a home at original place

but must intend on returning at the end of the temporary period

What is a LAFHA?

• For residents of Australia you could be living away from home for up to 2 years and be entitled to the tax free components of a LAFHA

• For non-residents you could be living away from home for up to 4 years and be entitled to the tax free components of a LAFHA

• Usually only the tax free components were paid to an employee

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Where are we at?• Tax Laws Amendment (2012 Measures No. 4)

2012 bill has been passed by the House of Representatives

• The bill was sent to House Standing Committee on Economics who have reported back to the House of Representatives. The bill was amended following the report

• We are waiting for the bill to be passed by the Senate and therefore are working with anticipated changes

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What are the changes?

• Limiting LAFHA exemptions.• The Government announced initially in The Mid-

Year Economic and Fiscal Outlook (MYEFO).• A consultation paper was released for discussion.• More details in the 2012/2013 Commonwealth

Budget.• Draft Legislation was released on 15 May 2012.


• Legislation was introduced to parliament on 28 June 2012.

• Legislation passed the House of Representatives on 21 August 2012

• Effect of changes is to limit tax exemption from 1 July 2012 1 October 2012.

• Why? $1.8bil in revenue over forward estimates


New LAFHA rules from 8 May 2012– Applies to both residents and non-residents– Must maintain a home for personal use in

Australia (can’t rent/sub-let)– Need to live away from that home for work– Maximum LAFHA exemption period of 12

months at one site

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Legislative Changes– Move the LAFHA to the income tax system

(like every other allowance).– Allow deductions for actual accommodation

and food expenses against the allowance– Actual expenses must be substantiated– No deduction for the first $110 $42 of food

expenses– Food amounts below a limit (yet to be set)

won’t need to be substantiated.10

How will the changes affect staff?

Staff from overseas that are receiving a LAFHA will not be entitled from 1 October

– Salary packaged LAFHA’s with SmartSalary will cease. SmartSalary has/will contact the employees directly

– LAFHA’s arranged as part of the contract with the employee and paid through HR will be taxed from 1 October

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Staff from Australia that are receiving a LAFHA will not be affected

– Transitional arrangements are in place to ensure they continue to be entitled until the end of their LAFHA period or 1 July 2014

– A change to their employment conditions or LAFHA arrangements could reset their entitlement

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Staff that are setting up a LAFHA will be subject to news rules

– They must maintain a home in Australia– Must have full and free access to their home– Will be limited to 12 months of allowable

deductions (exemption)– Need to live away from home for work– Allowance provided to recognise additional

costs of living away from home

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– Employer to determine if employee is entitled to Food and Accommodation deductions

– Employer to self assess PAYGW variation– Employer needs to be able to capture

information to ensure eligibility for deductions exemptions

– First $110 $42 of Food component will always be subject to PAYG FBT

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How will the changes impact visitors?

[This is for visitors from overseas, typically on 419 Visas]

Are visiting academics employees?– For EBA purposes – No– For tax purposes – Yes. FBT Act expands the

definition of employee– Need to ask: “If the benefit had been provided

as cash, would PAYG apply?”– If PAYG would apply then the payment fits the

definition of salary and person is an employee

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• Visiting academic allowances are normally to compensate for the additional living costs

• As they are considered to be living away from home, the payments are a LAFHA

• This has meant visiting academic allowances were generally tax free if limited to food and accommodation

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Tax Implications• From 1 October 2012 tax will apply to these

payments• Visiting academics will be not living away from a

home they maintain in Australia• Tax will be either FBT which adds 90% to the

cost of a visiting academic; or • PAYGW which adds up to 70%

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Current Situation

There are 3 ways to pay a LAFHA to visiting academics:• Through AP as a payment of the exempt amounts

to the employee (an allowance)• Through AP as a reimbursement on the production

of receipts (reimbursement)• Through AP as a direct payment to the supplier

(direct payment)


Situation post 1 October

There are 3 ways to pay a visiting academic:• Through HR as an allowance – PAYGW & on-costs• Through AP as a reimbursement on the production

of receipts (reimbursement) – Full FBT• Through AP as a direct payment to the supplier

(direct payment) – Full FBT• These changes will impact current visitors


Are there any tax free options remaining?• Double Taxation Agreements

– Professor and Teachers clause– Less than 2 years, public benefit research–

• Travel Allowance– Duration, maintaining a home, short term

accommodation, is family accompanying?

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Argentina Belgium China Fiji GermanyHungary India Indonesia Ireland ItalyMalaysia Netherlands Philippines Poland South KoreaSweden Thailand


Are there other tax free options?• Contract for Service

– Enter into a contract for service in accordance with the Sole Trader contract

• Arrangements with home institution to invoice ANU for secondment– Careful not to invoice for living costs as this will

continue to be a Fringe Benefit

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Students• Some students are invited to ANU to continue

studies• Some students come on 442 Visa –

Occupational Training• Some Students get a stipend for living costs• Tax will not apply to students as they are

considered volunteers and the payments are not connected to employment

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Visitor Working Group Update

• Visitor payment decision tool• Relocated vs traveller determination tool• Payments from HRMS – banking requirements• Reviewing person of interest to identify visitors• Updated visitor invitation letter• Emailed ANU Academics, GM’s, Deans re

changes• Paying visiting academics policy• Bona fide travel allowance payment rules

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Alternatives for attracting non-residents

• Relocation Allowances– Temporary accommodation (rent) for 6

months (up to 12 months for owners selling)– Moving & storage of furniture– Transport costs– Moving consultant– Where they sell in previous location within 2

years: Stamp duty and fees associated with sale and purchase

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Alternatives for attracting non-residents

• Education of Children– Overseas Employees only– Payment of full time education costs (school,

college, university or tutor)– Overseas employees working in Australia >28

days (or Australian employees overseas)– Student does not need to accompany

employee– Industry standard or award requirement

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Questions

Contact: Luke [email protected]

lafha changes spell trouble: non-residents hit hardest 30 august 2012

Documents

tax home

lafha period

lafha arrangements

lafha exemptions

work slide

lafha changes spell

australia tax

legislative changes