Taxation and Revenue Alert: Changes to living-away-from-home fringe benefits announced - 16 Jan 2012

The Federal Government has announced that it intends to change the law around living-away-from-home benefits from 1 July 2012, as it believes the concessions are being used in ways that fall outside of the original policy intent.

The changes aim to ensure taxation equality for workers doing the same job in the same place. Here, special counsel Justin Byrne outlines the changes to the system and how they will affect employers whose workers benefit from living-away-from-home arrangements.

Key points

  • Living-away-from-home fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (Cth) compensate employees for additional costs incurred - generally, accommodation and food - when they are temporarily relocated away from home in the course of their employment.
  • If the proposed changes to the benefits are implemented, employers will need to undertake a full review of their living-away-from-home arrangements. Where the arrangement does not conform with the new rules, the employer may be liable for fringe benefit tax (FBT) on the benefit, and may run the risk of incorrectly calculating its PAYG withholding on the living-away-from-home amount.
  • Depending on the way employees' packages are currently structured, from 1 July 2012, employers may find that they need to pay employees significantly more. For example, a package could provide that an employee receive a certain amount after tax. As a result of the changes, some of the employee's package may become subject to tax (either income tax in the employee's hands, or FBT payable by the employer). Either way, the employer will end up paying more in order to satisfy the terms of the employment contract.
  • Employers will need to obtain an additional declaration from employees who are temporary residents, which states that the employee maintains a residence in Australia.
  • These changes effectively revert this particular part of the income tax system to how it was before the introduction of the FBT law in 1986. A living-away-from-home allowance will be taxed through inclusion in an employee's assessable income (rather than through the FBT system), and qualifying living-away-from-home expenditure under the new rules will be an allowable deduction.

The changes to living-away-from-home benefits

In broad terms, the FBT treatment of living-away-from-home benefits will be reformed as follows:

  • Employees who are temporary residents of Australia must maintain a home for their own use in Australia (which they are living away from for the purposes of their work) to access the living-away-from-home concession.
  • All employees (both permanent and temporary Australian residents) will be required to substantiate their living-away-from-home expenses. Employers will need to obtain documentary evidence from their employees to substantiate the claimed expenses incurred on accommodation. This evidence could include lease agreements, mortgage documents and receipts for accommodation.
  • Living-away-from-home allowances will no longer be taxed through the FBT system and will instead be included in an employee's assessable income. Where an employee meets the substantiation and other conditions for the concession, the employee will be able to claim a tax deduction for the expenses incurred.
  • Living-away-from-home reimbursements will remain subject to FBT unless the conditions for the concession are satisfied.

Who is affected by these reforms?

Permanent Australian residents receiving genuine living-away-from-home allowances will not lose any existing entitlements under the proposed changes, and the following classes of taxpayer will not be affected by the reforms:

  • Permanent Australian residents receiving living-away-from-home benefits that can be substantiated.
  • Employees operating under fly-in fly-out arrangement within Australia.
  • Employees of community sector organisations that are not currently using their entire FBT exemptions cap.

In addition, the following allowances and concessions will not be affected:

  • Travel allowances provided to employees who are required to travel from their usual place of work for short periods.
  • Employees receiving FBT remote area concessions.
  • Employees receiving FBT education expenses concessions for their children when they are living away from home for work.

The Federal Treasury is currently seeking submissions on these changes, with a view to the amending legislation being passed by Parliament in the first part of the 2012 calendar year.

For more information about how living-away-from-home benefits will be affected by the FBT reform, please contact HopgoodGanim's Taxation and Revenue team.