'Confusing' LAFHA transitional rules to be clarified

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Created on Friday, 18 May 2012 11:07

Written by Editorial staff

Confusion over changes to the Living Away From Home Allowance (LAFHA) for 457 visa holders should be clarified within the next few weeks - news which is likely to be welcomed by temporary visa holders, their employers and migration agents who assist with this type of visa application.

In the 2012-13 Budget, the government confirmed the position it had taken in the 2011-12 Mid-Year Economic and Fiscal Outlook, which will close LAFHA eligibility to most workers - including 457 visa holders.

Only those people who have a primary place of residence within Australia and are required to relocate to another area for work will be eligible for the tax concession from the beginning of the 2012-13 financial year.

A further change will see a 12-month limit imposed on the length of time a worker can claim this tax break at any particular work location.

But some confusion has arisen about so-called "transitional rules" that could affect people already residing in Australia on 457 visas that were approved before the release of the new Budget.

According to KPMG's Federal Budget Brief, those who had a 457 visa approved before May 8 2012 may be affected by possible transitional rules that cover the period up to July 1 2014, while those whose visa was approved after this date will be subject to the new changes from July 1 2012. It has not yet been confirmed who will be eligible for this transition period.

Other analysts are less clear on what will happen, who will be eligible to take advantage of transitional arrangements, and what exactly these arrangements will entail. The general consensus is that 457 holders will have to wait until legislation is made official over the next couple of months to clarify their eligibility for future tax concession entitlements.

The Treasury is currently in the midst of a fortnight of public consultation on its proposed changes to the LAFHA legislation - the closing date for submissions is Tuesday May 29. A two-year transition period for 457 visa holders who hold property overseas is not included in the current draft legislation.

According to staffers at media website Mumbrella, the changes will be of particular interest to their industry, as a high proportion of overseas staff are employed in media roles.

Among the knock-on effects of the end of LAFHA for the majority of 457 visa holders will include a reduction in take-home pay for many people currently receiving the tax break, as well as a likely increase in mandatory employer superannuation contributions.

But David Gaines, a British expat and Australian permanent resident who heads up media agency Maxus, told Mumbrella that tax breaks are a relatively small incentive for migrant workers to come to Australia.

He explained: "Most people come to Australia for the lifestyle and you can't put a price on that."