The Government has released a consultation paper setting out some significant amendments to the living away from home benefits regime. The proposed changes are targeted at foreign nationals transferring to Australia. Australian residents will also have to include any allowance in their assessable income, but will be entitled to a deduction for eligible expenses for living away from home.
The proposed changes are intended to apply from 1 July 2012 for both new and existing arrangements. All benefits and allowances provided from 1 July 2012 will be subject to the new arrangements.
The key changes set out in the consultation paper are:
- temporary resident employees will be required to maintain a home for their own use in Australia (which they are required to live away from for work purposes) to access the concession, and in those cases the expenses will need to be substantiated;
- all other employees will be required to substantiate their ‘living away from home’ expenses;
- any allowance paid by an employer to an employee as compensation for being required to live away from home will be included in the assessable income of the employee;
- private or domestic expenses, such as accommodation and food, are generally not deductible for income tax purposes. However, under the proposal, permanent residents will be able to claim an income tax deduction for accommodation expenses they can substantiate and for food expenses beyond a statutory amount;
- temporary residents who maintain a home in Australia for their own use and who are required to live away from that home to perform the duties of their employment will be able to claim an income tax deduction for their actual expenses;
- allowances for other temporary residents will be taxed as ordinary income;
- employers who provide other ‘living away from home’ benefits will continue to be exempt from fringe benefits tax on those benefits provided to permanent residents and to temporary residents maintaining a home in Australia, which they are living away from for their work; and
- employers who provide direct ‘living away from home’ benefits to other temporary residents will be liable for fringe benefits tax on those benefits.
We recommend that employers consider how these changes will impact on their business and in particular, if there is a fringe benefit tax liability for an existing arrangement. Importantly, existing arrangements with employees may need to be renegotiated and employer policies updated to address the changes to the taxation of living away from home benefits.
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