LAFHA changes will burden employers with contract renegotiations

by 08 May 2012

Employers and foreign workers will be keenly tuned in to tonight’s Federal Budget announcement, as Treasurer Wayne Swan will announce the final changes to the living-away-from-home allowance (LAFHA) tax concessions.

Widely used as an enticement for skilled foreign workers, the LAFHA tax concession is expected to be removed for workers not engaged in fly-in fly-out arrangements.

The federal government’s proposed changes to take effect from 1 July 2012 will:

  • require LAHFA recipients to substantiate their actual expenditure on taxable items
  • limit access to LAHFA for relocations within Australia
  • transfer administration of the taxation of LAHFA to the income tax system instead of the current fringe benefit legislation.

According to Grant Thornton’s Fringe Benefit Tax specialist Elizabeth Lucas, the exclusion of the temporary visa holders from the concession is supposed to put them on an even playing field with Australian workers. Yet, Lucas said many employers simply cannot find the specialist people they need in Australia. “When you’re trying to attract a highly skilled person from overseas, it’s net pay that counts, so these changes would mean a much higher cost to business. It’s even causing some of our clients to look at moving parts of their businesses offshore,” Lucas said.

However, the government has assured employers that the  requirement for employees to claim deductions for their costs and to substantiate these when over a certain amount will eliminate widespread rorting. Essentially, by removing the carrot, the government believes it will remove the practice of highly paid senior executives claiming tax concessions for food and rental expenses.

Yet some employers of foreign workers fear a $20,000 hit for those recruited to a wage of about $130,000 will send employees home. Despite flagging that the changes will take effect on July 1, the government is yet to explain whether transitional arrangements will be made for skilled workers already in Australia.

The Immigration Department has advised temporary foreign workers it is up to them to renegotiate the terms of their employment with their sponsor.

Stay tuned, more to come in HC’s budget analysis out tomorrow.


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