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Two year LAFHA reprieve for overseas agency staff already in place

(May 10 update: The question of whether overseas workers will be covered by the transition arrangements referred to below has been subject to fierce debate – see the comment thread. Mumbrella has been seeking clarification from the Treasury but at the time of writing this update, the issue is in question)

The media and marketing industry’s many overseas workers from the UK and elsewhere have been given a temporary reprieve over the loss of a tax perk worth thousands of dollars a year.

The government had flagged up the loss of the LAFHA – the Living Away From Home Allowance – as taking place from this July. The LAFHA allows workers on four year 457 visas to claim back their rent and living costs back against tax.

When the government flagged up its plans to axe the perk because it was being rorted, it generated a big debate on Mumbrella, with more than 250 comments.

The LAFHA suited employers because it helped in overseas recruitment by allowing them to offer a better deal, and it also reduces company’s mandatory super contributions because these are only paid on the basic salary, and not the rent allowance part of a remuneration package.

Yesterday’s budget saw the government confirm that it was indeed closing the LAFHA to most workers from this July. However, those who have already got LAFHA arrangements in place, will be allowed to continue with them until July 1, 2014 – an extension of two years.

The government guidance said:

“The Government will further reform the tax concession for living-away-from-home allowances and benefits, by better targeting it at people who are legitimately maintaining a home away from their actual home for an initial period.

“One of the issues raised at last October’s Tax Forum was the increasing exploitation and misuse of this tax concession by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.

“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.

“These further reforms will stop businesses from being able to give a very large taxpayer-funded tax break to employees who aren’t maintaining a second home, or are maintaining two homes indefinitely.

“It’s simply not fair or reasonable for ordinary taxpayers to be funding this kind of massive tax perk for a very small number of people.

“The reforms will apply from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to that time.”

Brits make by far the biggest contribution to the overseas contingent in Australian media and marketing companies.

The end of the perk when it comes to recruiting new staff will probably have less impact at present because of the strong dollar and weak UK economy.

David Gaines, boss of media agency Maxus, who is British but gave up LAFHA when he obtained residency in 2006, told Mumbrella: “If you’re leaving the UK to work abroad, and you’re looking for tax breaks, you don’t go to Australia. You’d go to Asia. With the new LAFHA rules, we’re talking about a few people who won’t have a sea view until they get promoted a few rungs.

“People whining about few hundred bucks added to their rent won’t stem the flow people here.

“As an agency, we won’t be jacking up salaries for foreign talent to make up for them not having LAFHA. That would ruin the market and not be fair to Australians. Unless you are 100% dedicated to your career, and fame and fortune in medialand is your end game, then the LAFHA changes won’t mean much to you. Most people come to Australia for the lifestyle, and you can’t put a price on that.”

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