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AUSTRALIA: Impending Changes to Living Away From Home Allowance Rules

Currently, employees living away from home to perform their employment duties in Australia may be eligible for tax-free benefits for reasonable housing and food costs under the Living Away From Home Allowance (LAFHA) rules. Changes have been proposed to start on July 1, 2011, to address the perceived abuse of these LAFHA tax concessions.

As a result of the proposed changes, employers of foreign workers in Australia will need to consider their recruitment and retention strategies, current contracts of employment, and whether to facilitate transition of current sponsored temporary residence employees to permanent residence.

Essentially, employers have three key options to consider:

  1. increasing the foreign worker's remuneration so that his or her take-home pay is not affected;
  2. continuing to pay the LAFHA, which means the foreign worker will pay tax under the income tax regime; or
  3. renegotiating contracts of employment so that the foreign worker is reimbursed for reasonable accommodation and food expenses. In this case, the employer incurs a fringe benefit tax liability.

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