Tax Update * Budget 2012/13

Report
LAFHA Changes Spell Trouble:
Non-residents Hit Hardest
30 August 2012
Overview
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What is a LAFHA?
What are the changes?
How will the changes affect staff?
How will the changes impact visitors?
Visitor Working Group Update
Alternatives for attracting non-residents
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What is a LAFHA?
LAFHA is Living Away From Home Allowance
Background
• LAFHA is an allowance that is taxed under the
Fringe Benefits Tax Assessment Act 1986
• An employee needs to temporarily relocate for work
• The amount paid is to compensate for the
additional expenses of living away from home for
work
What is a LAFHA?
• Food (ATO) components of a LAFHA are exempt
from tax
• Reasonable accommodation costs are also exempt
from tax
• Home could be anywhere in the world
• Do not have to maintain a home at original place
but must intend on returning at the end of the
temporary period
What is a LAFHA?
• For residents of Australia you could be living
away from home for up to 2 years and be
entitled to the tax free components of a LAFHA
• For non-residents you could be living away from
home for up to 4 years and be entitled to the tax
free components of a LAFHA
• Usually only the tax free components were paid
to an employee
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Where are we at?
• Tax Laws Amendment (2012 Measures No. 4)
2012 bill has been passed by the House of
Representatives
• The bill was sent to House Standing Committee
on Economics who have reported back to the
House of Representatives. The bill was
amended following the report
• We are waiting for the bill to be passed by the
Senate and therefore are working with
anticipated changes
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What are the changes?
• Limiting LAFHA exemptions.
• The Government announced initially in The MidYear Economic and Fiscal Outlook (MYEFO).
• A consultation paper was released for discussion.
• More details in the 2012/2013 Commonwealth
Budget.
• Draft Legislation was released on 15 May 2012.
What are the changes?
• Legislation was introduced to parliament on 28
June 2012.
• Legislation passed the House of Representatives
on 21 August 2012
• Effect of changes is to limit tax exemption from 1
July 2012 1 October 2012.
• Why? $1.8bil in revenue over forward estimates
What are the changes?
New LAFHA rules from 8 May 2012
– Applies to both residents and non-residents
– Must maintain a home for personal use in
Australia (can’t rent/sub-let)
– Need to live away from that home for work
– Maximum LAFHA exemption period of 12
months at one site
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What are the changes?
Legislative Changes
– Move the LAFHA to the income tax system
(like every other allowance).
– Allow deductions for actual accommodation
and food expenses against the allowance
– Actual expenses must be substantiated
– No deduction for the first $110 $42 of food
expenses
– Food amounts below a limit (yet to be set)
won’t need to be substantiated.
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How will the changes affect staff?
Staff from overseas that are receiving a
LAFHA will not be entitled from 1 October
– Salary packaged LAFHA’s with SmartSalary
will cease. SmartSalary has/will contact the
employees directly
– LAFHA’s arranged as part of the contract with
the employee and paid through HR will be
taxed from 1 October
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How will the changes affect staff?
Staff from Australia that are receiving a
LAFHA will not be affected
– Transitional arrangements are in place to
ensure they continue to be entitled until the
end of their LAFHA period or 1 July 2014
– A change to their employment conditions or
LAFHA arrangements could reset their
entitlement
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How will the changes affect staff?
Staff that are setting up a LAFHA will be
subject to news rules
– They must maintain a home in Australia
– Must have full and free access to their home
– Will be limited to 12 months of allowable
deductions (exemption)
– Need to live away from home for work
– Allowance provided to recognise additional
costs of living away from home
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How will the changes affect staff?
– Employer to determine if employee is entitled
to Food and Accommodation deductions
– Employer to self assess PAYGW variation
– Employer needs to be able to capture
information to ensure eligibility for deductions
exemptions
– First $110 $42 of Food component will always
be subject to PAYG FBT
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How will the changes impact visitors?
[This is for visitors from overseas, typically on 419 Visas]
Are visiting academics employees?
– For EBA purposes – No
– For tax purposes – Yes. FBT Act expands the
definition of employee
– Need to ask: “If the benefit had been provided
as cash, would PAYG apply?”
– If PAYG would apply then the payment fits the
definition of salary and person is an employee
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How will the changes impact visitors?
• Visiting academic allowances are normally to
compensate for the additional living costs
• As they are considered to be living away from
home, the payments are a LAFHA
• This has meant visiting academic allowances
were generally tax free if limited to food and
accommodation
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How will the changes impact visitors?
Tax Implications
• From 1 October 2012 tax will apply to these
payments
• Visiting academics will be not living away from a
home they maintain in Australia
• Tax will be either FBT which adds 90% to the
cost of a visiting academic; or
• PAYGW which adds up to 70%
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How will the changes impact visitors?
Current Situation
There are 3 ways to pay a LAFHA to visiting
academics:
• Through AP as a payment of the exempt amounts
to the employee (an allowance)
• Through AP as a reimbursement on the production
of receipts (reimbursement)
• Through AP as a direct payment to the supplier
(direct payment)
How will the changes impact visitors?
Situation post 1 October
There are 3 ways to pay a visiting academic:
• Through HR as an allowance – PAYGW & on-costs
• Through AP as a reimbursement on the production
of receipts (reimbursement) – Full FBT
• Through AP as a direct payment to the supplier
(direct payment) – Full FBT
• These changes will impact current visitors
How will the changes impact visitors?
Are there any tax free options remaining?
• Double Taxation Agreements
– Professor and Teachers clause
– Less than 2 years, public benefit research
– Argentina Belgium
China
Fiji
Germany
Hungary
Malaysia
Sweden
India
Indonesia
Netherlands Philippines
Thailand
Ireland
Poland
Italy
South Korea
• Travel Allowance
– Duration, maintaining a home, short term
accommodation, is family accompanying?
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How will the changes impact visitors?
Are there other tax free options?
• Contract for Service
– Enter into a contract for service in accordance with
the Sole Trader contract
• Arrangements with home institution to invoice
ANU for secondment
– Careful not to invoice for living costs as this will
continue to be a Fringe Benefit
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How will the changes impact visitors?
Students
• Some students are invited to ANU to continue
studies
• Some students come on 442 Visa –
Occupational Training
• Some Students get a stipend for living costs
• Tax will not apply to students as they are
considered volunteers and the payments are not
connected to employment
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Visitor Working Group Update
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Visitor payment decision tool
Relocated vs traveller determination tool
Payments from HRMS – banking requirements
Reviewing person of interest to identify visitors
Updated visitor invitation letter
Emailed ANU Academics, GM’s, Deans re
changes
• Paying visiting academics policy
• Bona fide travel allowance payment rules
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Alternatives for attracting non-residents
• Relocation Allowances
– Temporary accommodation (rent) for 6
months (up to 12 months for owners selling)
– Moving & storage of furniture
– Transport costs
– Moving consultant
– Where they sell in previous location within 2
years: Stamp duty and fees associated with
sale and purchase
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Alternatives for attracting non-residents
• Education of Children
– Overseas Employees only
– Payment of full time education costs (school,
college, university or tutor)
– Overseas employees working in Australia >28
days (or Australian employees overseas)
– Student does not need to accompany
employee
– Industry standard or award requirement
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Questions
Contact: Luke Beckett
X58739
[email protected]
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