We’re joined once again by Katie Malyon, who’s a Principal at Katie Malyon & Associates. Katie thank you for joining us again on BRR Media.
It’s a pleasure.
Well Katie the Government’s announced that they’re making changes to the Living Away from Home Allowance, with particular impact I guess for foreigners, before we look at what is going to be changed, how does the current scheme work?
Kate the Living Away from Home Allowance concessions provide tax-free benefits for housing and for food cost of employees, who are required to live away from their home in order to perform their employment duties. The amounts paid are exempt from both income tax and fringe benefit tax, so a significant advantage for both employers and employees and a real attractiveness in terms of bringing employees to Australia. So typically an ex-pat working here is able to have part of their salary paid to them as a tax-free Living Away from Home allowance, towards the cost of housing and food. Concessions also apply for children’s education and home leave visits. So they’ve really enabled employers to attract and retain highly skilled people from overseas, but that’s all about to change.
Okay. And so when you talk about living away from home, I understand that you mean living away from their home overseas.
Correct, that’s been the situation to date. What the Government is proposing to do is to address what it see as a rort in the tax exemption arrangements to date. We’ve seen amounts that employers have reported to the tax office increasing from $162 million in 2005 to $740 million in 2011. So for a government that’s trying to balance its budget it’s an obvious area to examine. They’re going to essentially introduce two key changes; one is to move the current Living Away from Home rules from the fringe benefit tax regime into the income tax regime, so that the allowances will become assessable as income to the employees. The second change is that they will limit access to the tax exemptions that will be contemplated to those who maintain a residence of their own use in Australia. So this will capture people who, you know in the resource sector, fly-in, fly-out, still be able to maintain those exemptions, but for an ex-patriot it will mean having to maintain a home, say in Melbourne, but required to work in Sydney for a period of time.
So it will knock out a lot of the foreigners currently claiming the scheme.
Absolutely. And although the Government has invited responses to its proposed changes the time period for those closed 3 February, they’re reviewing the responses now, employer groups are concerned about the impact that this will have on attracting highly skilled workers to Australia and the possibility of even moving jobs off shore, dare to criticise the Government for going too far.
Okay, and Katie you’ve mentioned that it’s likely to have a number of impacts on employers, I guess if we could just look at what employers should be doing – or should be considering rather before the changes come in.
What employers should be doing now is to consider, first of all their recruitment and their retention strategies, and that’s something they’ll need to turn their minds too. They should also be looking at contracts of employment with current ex-patriots because many of those will have clauses in relation to the Living Away from Home Allowance positions. And they’ll also need I guess to consider whether with the changes in mind, whether or not some of their sponsored employees might consider transitioning to permanent residents, before the implementation date proposed to be 1 July this year. Having lost out on the tax concessions they might be otherwise able to access benefits of being a permanent resident such as access to Medicare. I know certainly some of our employer clients are considering grandfathering current arrangements for a period, perhaps increasing an ex-pat’s gross remuneration so that their take home pay is not affected, this comes at an obvious cost to the business though and you can’t continue doing that indefinitely, but certainly grandfathering provisions. Some are certainly looking at continuing to pay Living Away from Home Allowance, but in this case the ex-patriot will be paying tax under the income tax regime, meaning less take home pay for the ex-pat and in those circumstances you know permanent residency is something that’s obviously on the agenda there. Some people are also considering renegotiating their employment contracts, so that instead of paying say a housing allowance, that they’re actually going to reimburse their ex-patriot’s actual accommodation expenses. In that case then the expense will be subject to fringe benefits tax payable by the employer. So you can see there are a few options that employers are considering and whether it’s renegotiating contracts, continuing to pay certainly some ideas there to consider. I guess what would have been helpful if we’d had some time ago, clearer guidelines from the ATO about what the percentage of gross income should be, claimed as Living Away from Home Allowance, or if we’d had a cap on the allowances, just some clearer guidelines would have helped. But for employers wanting to attract highly skilled people from overseas, particularly those countries which have an unemployment rate a lot higher than Australia, I guess those countries will be on employer’s radar, definitely, but with unemployment now around 5.2 perhaps rising to 5.3 then certainly Australia is nonetheless still an attractive destination for some people.
Yes certainly, but of course still likely to have some impact on employers. Katie thank you, as always, for your insights.
That was Katie Malyon, a Principal at Katie Malyon & Associates. Now listeners if you have any questions for Katie of course send them through either using the panel that appears on your screen or via email to firstname.lastname@example.org.