Proposed Changes to the “Living Away From Home Allowance”

Executive remuneration for expatriates in Australia is likely to be impacted by the proposed changes to the fringe benefits tax treatment of Living-Away-From-Home –Allowance (“LAFHA”) benefits. The proposed changes were announced by the Government on 29 November 2011.

Under the proposed changes, relevant employees will broadly be subjected to more stringent substantiation requirements (in particular, relating to accommodation and food) and LAFHA benefits will substantially be limited to relocations within Australia (where overseas employees are, for the purpose of work, living away from a home they maintain for their own use in Australia – not from an overseas home).

The consequence of the proposed changes is that more overseas employees working in Australia will now be required to meet their living expenses out of their after-tax income. This will necessitate a review of existing employment arrangements to decide if LAFHA should continue to be paid (with the employee bearing the increased tax liability) or gross remuneration should be increased (to ensure a neutral after-tax outcome for the employee).

The Government is currently considering submissions in response to the proposed changes with possible further consultation and draft legislation scheduled in the next couple of months. However, with an intended commencement date of 1 July 2012 and no indications to date on whether a transitional rule will be available to existing expatriates, the resulting uncertainty and impact on the market for overseas executive talent is of concern.

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