Living Away Allowance for Australian temporary visa holders extended to 1 July 2014

15 May 2012

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The Australian Government this week has announced that employees currently claiming the Living Away from Home Allowance (LAFHA) will be able to continue doing so until 1 July 2014. The government had previously announced that the LAFHA would be closed to most temporary visa holders from 1 July 2012. This change only applies to people who were claiming LAFHA prior to 8 May 2012.

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 on 457 visas to boost their take-home pay.

People will not be eligible for the extension of LAFHA unless they can show they are maintaining a second home in Australia. In this case, LAFHA can only be claimed for a maximum of 12 months. 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 further reform the tax concession for living-away-from-home allowances and benefits, by better targeting it at people who are legitimately maintaining a home away from their actual home for an initial period," according to government guidance. "These further reforms will stop businesses from being able to give a very large taxpayer-funded tax break to employees who aren't maintaining a second home, or are maintaining two homes indefinitely."

Concessions for "fly in, fly out" employees will continue, along with the current tax treatment of travel and meal allowances for short periods of travel up to 21 days.

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