Tightening of LAFHA leads to significant flow-on expenses

by Human Capital30 Jul 2012

A federal parliamentary hearing has been told that the proposed amendments to the living away from home allowance (LAFHA) will affect more than just the “narrow group of people” identified by Treasurer Wayne Swan.

The House of Representatives Economics Committee assembled a cross-section of industry groups, unions, universities and tax experts on Thursday to discuss the scale-back of LAFHA recipients, the Herald Sun reported.

The changes announced in this year’s federal budget include restricting the allowance to those who maintain a residence for their own use in Australia, that they are required to live away from for work (such as 'fly-in fly-out' workers). There is also a 12 month time limit on how long an employee can receive the tax concession at a particular work location.

The roundtable discussion heard from Australian Industry Group director of public policy Peter Burn that while he agreed that it was important to address the misuse of LAFHA, the changes go beyond what Treasurer Swan described as "the abuse by a narrow group of people".

A point which has concerned employers is the possibility that business will be forced to make up the difference from the removal of the allowance to retain and attract foreign staff with specialised skillsets. An independent survey conducted by PricewaterhouseCoopers (PWC) found 77% of its clients expected the tax changes to come at a cost that would either be borne by business or the consumer. “The removal of the living away from home allowance for temporary residents, and the significant and unwarranted limitations for everyone else, is a disincentive for employees to be mobile. This will make the skill shortages in Australia worse,” Norah Seddon from PWC said.

Academics were no less scathing, and Professor Ann Brewer from the University of Sydney said the reforms to LAFHA will prove to be a false economy in the next decade, outweighing the value of immediate savings to the budget.


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