The Tax Laws Amendment (2012 Measures No 4) Bill 2012 has been passed by the House of Reps with one Government amendment that replaced Sch 1 to the Bill concerning changes to the tax treatment of LAFHAs. The other amendments contained in the Bill concern GST and representatives of incapacitated entities; and consolidation and penalties (see below). The Bill now moves to the Senate.
The new Sch 1 was included in response to the recommendations made by the House of Reps Economics Committee. The Government amendments picked up on all of the key recommendations in the Committee's report. The Assistant Treasurer said the amendments are designed to:
- ensure LAFH allowances are taxed within the FBT system, rather than in the personal income tax system or a combination of both;
- expand the definition of fly-in fly-out workers and drive-in drive-out workers for the purposes of the reforms, so those workers who live at home with their parents, or whose home on "off" days is in a country other than Australia, do not lose the concessional tax treatment;
- expand the definition of drive-in drive-out workers for the purposes of the reforms, so it includes workers who use their own vehicle to travel to the workplace;
- amend the circumstances in which the 12 month time limit will pause, to provide certainty and simplicity; and
- ensure the provisions that prevent people accessing the transitional treatment if they "vary" an existing arrangement only apply to "material variations" and do not prevent minor changes such as normal salary increases.
The general start date of the LAFHA changes is 1 October 2012 (with the changes announced in the 2012-13 Federal Budget applying from 1 July 2014 for arrangements entered into prior to 7:30pm (AEST) on 8 May 2012). The changes announced in the Budget seek to:
- limit access to the tax concession to employees who maintain a home for their own use in Australia, that they are living away from for work; and
- provide the tax concession for a maximum period of 12 months in respect of an individual employee for any particular work location.
The Assistant Treasurer said the changes will not affect:
- the tax concession for fly-in fly-out and drive-in drive-out arrangements, as these employees will not be subject to the 12-month time limit;
- the tax treatment of travel and meal allowances, which are provided to employees who have to travel from their usual place of work for short periods (generally up to 21 days);
- the tax concessions that are provided for remote area fringe benefits.
Key features of the new provisions
The new Sch 1 provisions concerning LAFHAs have the following key features:
- Concessional treatment for LAFH allowances and benefits will be limited to employees (other than those working on a fly-in fly-out or drive-in drive-out basis) who:
- maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while required to live away from that home for their work;
- incur expenses for accommodation and food or drink for a maximum period of 12 months while living away from home at a particular work location. Employees must be able to substantiate expenses incurred on accommodation, and food or drink (beyond the Commissioner's reasonable amount); and
- have provided their employer with a declaration about living away from home
- Special rules will apply to employees who are working on a fly-in fly-out or drive-in drive-out basis. These employees will not have to maintain a home in Australia for their own use for the concessional treatment to apply in relation to the fringe benefits and the concessional treatment is not limited to a period of 12 months. Certain conditions must be satisfied to be one of these employees, and to receive the concessional tax treatment, the employee must provide their employer with a declaration about living away from home.
- The taxable value of LAFHA fringe benefits provided to these employees will be able to be reduced by the employer by:
- the amount of the employee's actual substantiated accommodation expenditure while living away from home; and
- the amounts incurred by the employee for food or drink costs while living away from home less a statutory amount if applicable.
- Subject to transitional rules (see below), the changes generally apply from 1 October 2012.
- Transitional rules apply to: (i) employees who are permanent residents with employment arrangements in place prior to 7:30 pm (AEST) on 8 May 2012 (2012 Budget time); and (ii) the employment arrangement was not materially varied or renewed between Budget time and 1 October 2012. In these circumstances, the requirements that the employee must maintain a home in Australia and the fringe benefits must relate to the first 12 months the employee is living away from home will not apply until 1 July 2014. However, if there is a material change to or renewal of the employment arrangement between 1 October 2012 and 1 July 2014, the new rules will apply from the date of the change or renewal.
- Transitional rules also apply to: (i) employees who are temporary or foreign residents with employment arrangements in place prior to 7:30 pm (AEST) on 8 May 2012; (ii) the employment arrangement was not materially varied or renewed between Budget time and 1 October 2012; and (iii) they are maintaining a home in Australia for their immediate use and enjoyment at all times. In these circumstances, the requirement that the fringe benefits must relate to the first 12 months the employee is living away from home will not apply until 1 July 2014. However, if there is a material change to or renewal of the employment arrangement between 1 October 2012 and 1 July 2014, this rule will apply from the date of the change or renewal.
Other measures in Bill 4
The other measures contained in the No 4 Bill (which were not amended by the House) propose to:
- amend the GST Act to ensure that in circumstances where a representative of an incapacitated entity is a creditor of that entity, the correct provision of the GST Act is applied. That is, to ensure that Div 105 operates to the exclusion of Div 58 in circumstances where a representative of an incapacitated entity is a creditor of the incapacitated entity, and the representative makes a supply in satisfaction of a debt that the incapacitated entity owes to the representative;
- amend Sch 3 to the Tax Laws Amendment (2012 Measures No 2) Bill 2012 so that no interest or penalties are payable if an overpayment of income tax arises, or if additional tax becomes payable, under the recent amendments to the consolidation regime for consolidation events before 30 March 2011.
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