So I hear you like Home and Away. Well guess what? I think you're going to be staying home a lot more than going away thanks to the Federal Government's changes to tighten up the Living Away from Home Allowance (LAFHA) and benefits.

Taxation

The LAFHA is currently a fringe benefit assessable to an employer. From 1 July 2012, the LAFHA will be treated the same as other allowances, that is, as part of the assessable income of the employee (subject to the employee meeting the eligibility criteria).

Eligibility

The LAFHA is currently available to employees who are living away from their usual place of residence for work purposes. Employees must have an intention of returning to their usual place of residence. From 1 July 2012, the employee's usual place of residence must be "in Australia".

Duration

The LAFHA is currently not subject to a maximum time period, although it must expire at some point as eligibility is subject to the employee having an intention to return to their usual place of residence. From 1 July 2012, the LAFHA will only be available for a period of 12 months.

Transitional arrangements

Transitional rules are in place for LAFHA arrangements entered into before 8 May 2012 for permanent residents (whether or not their usual place of residence is in Australia) and temporary residents (who maintain a usual place of residence in Australia). Pursuant to the transitional rules, the "12 month rule" won't apply to their LAFHA arrangements until the earlier of 1 July 2014 or the date a new employment arrangement is entered into. Further, permanent residents on pre-8 May 2012 LAFHA arrangements won't be required to maintain a usual place of residence "in Australia" until 1 July 2014.

Exemptions

Fly in/fly out arrangements will be exempt from the "12 month" rule.

Impact

LAFHA arrangements are likely to be less desirable for both employers and employees once the "12 month rule" takes effect. However, the requirement to maintain a usual place of residence "in Australia" will likely mean that temporary residents are the ones who feel short changed. They may have to settle for watching their favourite soap from their offshore couches.

Employers should audit current LAFHA arrangements and consider whether there is a sufficient fall-back position once current LAFHA arrangements expire.

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