Temporary residents in Australia will lose access to the Living Away From Home Allowance (LAFHA) as of July 1, 2012
The Australian Treasurer announced (on 1 December 2011) that temporary residents in Australia will lose access to the Living Away From Home Allowance (LAFHA) as of July 1, 2012.
LAFHA is used by temporary residents to boost their take-home pay. Basically, some employers pay their foreign workers a LAFHA (eg to pay the rent) which comes off their gross wage. They then pay income tax on the lesser amount.
From 1 July 2012, 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”.
This will effectively close off the option for most temporary residents who claim the allowance because they are living away from their original home ie Ireland.
The Treasurer stated: “This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.”
“The total amount of tax-free living-away-from-home allowance reported by employers increased from $162 million in 2004-05 to $740 million in 2010-11.
“No permanent resident legitimately using this tax exemption for accommodation and food expenses will lose any entitlements. These reforms will not affect other tax concessions, such as those that apply to travel and meal allowances, and remote area fringe benefits.
Many temporary workers used the allowance to pay regular large outgoings, such as rent – these expenses will no longer be eligible tax deductions.
These allowances were often built into employment agreements, and 457 holders should check their employment contract to determine whether the employer has included a clause stating that the employer is not liable if the tax legislation changes the LAFHA.
Temporary residents pay a flat 29% tax rate and do not have access to Medicare, pay higher school fees and incur higher insurance and finance costs.
This change will result in 457 holders accelerating their application for permanent residence, although The Migration Place always recommending applying ASAP due to the rapid change of our visa laws, and regular increases in DIAC fees (another 5% to 15% increase is expected in 2012).