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LAFHA chaos as overseas staff excluded from transition period

Clarification on when workers will lose their entitlement to the Living Away From Home Allowance will be issued “relatively soon”, the Treasury has told Mumbrella. However it now appears certain that most overseas agency staff will lose out.

The move follows two days of confusion on the questions of whether overseas staff already receiving LAFHA will be entitled to a two year transition period.

The issue is a key one for the media and marketing industry, which employs a disproportionately large number of staff from overseas, particularly from the UK. LAFHA offers a tax perk towards living costs.

Tuesday’s budget announcement confirmed that LAFHA will end for most people. Guidance published on Tuesday appeared to suggest that anyone with LAFHA arrangements in place would be allowed a two year transition period.

However, this now appears to be incorrect. Commenters on Mumbrella say they have been told by Treasury sources that the guidance was misleading.

Although a full statement has not yet been issued by the Treasury, it has indicated to Mumbrella that people whose homes were overseas will not be allowed the transition period, and their entitlement to LAFHA will expire at the end of next month. A spokesperson for the Assistant Treasurer told Mumbrella:

“The reforms to the tax concession for living-away-from-home allowances and benefits announced in the 2011 Mid-Year Economic and Fiscal Outlook in November 2011, will apply from 1 July 2012. The scheme will no longer include those currently on LAFHA with homes overseas.”

These reforms, which were announced as part of the government’s “Tax Measures in Mid-Year Economic and Fiscal Outlook” in November include:

  • access to the tax exemption for temporary residents will be limited to those who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as ‘fly-in fly-out’ workers: i.e not temporary residents maintain a home overseas, and,
  • a requirement that claimants substantiate their expenses.

The confusion was created with the additional reforms to LAFHA announced in this week’s budget, in which a transitionary period was announced. The Assistant Treasurer’s spokesperson confirms that this transition period applies only to those elements announced in this week’s budget:

  • Limiting access to the tax concession to employees who are maintaining a home for their own use in Australia, that they are living away from for work; and
  • Imposing a 12 month time limit on how long an employee can receive the tax concession at a particular work location.
The first point, on first glance, appears to be identical to that listed in the November reforms, and the Treasury document -referred to as “budget paper two” does in fact say that all LAFHA reforms will be subject to a transitional period. Many commenters have expressed the view that the reforms have been communicated in a confusing manner.

Only Australian residents will be granted a two year transition period to re-arrange their financial affairs.

As a further complication, the question has now been raised as to whether the move breaches the UK/Australia Double Taxation Convention 2003 , in which Article 25 states: “Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected”.

The Treasury declined to comment on whetehr it was to blame for the confusion. But it said an “exposure draft”, a document which will lay out the practical applications of the reforms, would be released shortly.

Mumbrella could not reach the UK Consulate in Canberra for comment at time of writing.

A sample of social media conversations from Storify:

 

 

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