Outline

1. Living Away From Home Changes& Not-for-profit Tax ReformASPIA September 2012Presented by Elizabeth Lucas

2. Outline • LAFH tax concession changes • Status of impending changes • Outline of new rules • Impact for residents, temporary residents and foreign residents • Practical and salary packaging implications • NFP tax reform

3. Status of LAFH changes • Passed by House of Rep's • Waiting on passing through Senate and Royal Assent • Further amendments not likely

4. Outline of new LAFH rules • Major changes from 1 October 2012: • LAFH allowances and benefits remaining in FBT net (income tax idea scrapped) • Must maintain home in Australia that live away from, except for fly-in fly-out & drive-in drive-out • 12 months only per location, except FIFO & DIDO • Requirement to substantiate accommodation expenses and food expenses above certain limits

5. Outline of new LAFH rules (cont'd) • Remaining in FBT net • LAFH allowance – FBT on amount of allowance reduced by exempt components: • Exempt accommodation – reasonable amount • Exempt food – reasonable amount less normal consumption amount - per set limits • Pay direct or reimburse employee • Accommodation - exempt • Food – similar exempt amount to allowance

6. Outline of new LAFH rules (cont'd) • Must maintain a home in Australia • Owned or rented by employee &/or spouse • Must be available for use • Can't be rented out • Can have a house-sitter • FIFO & DIDO exempt from this requirement • Most temporary & non residents (incl. 457 visa holders) won't qualify for LAFH concessions

7. Outline of new LAFH rules (cont'd) • 12 month time limit • Per location – restart for new location where unreasonable to commute • 12 months starts 1 Oct 2012 for pre-existing arrangements (but also see transitional rules) • FIFO & DIDO not subject to this limit, regardless of whether employee or employer provides transport

8. Outline of new LAFH rules (cont'd) • Substantiation of exempt amounts • Accommodation – employee must substantiate • Food • If pay within ATO limits, no substantiation • If pay more, employee must maintain substantiation for all expenses & either give to employer or give declaration to employer • Need LAFH declaration annually

9. Outline of new LAFH rules (cont'd) • Transitional rules – concessions through to 30 June 2014 (per new rules) if: • Arrangements in place prior to 8 May 2012 • No material variation • Permanent residents can ignore requirement to maintain home in Australia, temporary and non residents cannot, therefore, effectively no transitional rules for them

10. Practical and salary packaging implications • Employers to review existing employment contracts – where/when concessions lost: • If tax equalised, ie. guaranteed net income, additional cost to employer • If tax impost would be on employee, or salary packaging ability lost, employer to consider whether to compensate/share the cost – perhaps for an interim period

11. Practical and salary packaging implications (cont'd) • Where additional cost to employer, consider changing to allowance subject to income tax, especially if employee earns less than $180k pa • Consider whether permanent move appropriate and other benefits– eg. remote area & board • Expect strong focus on compliance from ATO

12. NFP tax reform • Classification for tax purposes: • Statutory definition of charity – no legislation yet • Standardised special conditions – Bills passed House of Rep's, gone to Senate Committee • Better targeting of tax concessions (UBIT) – no legislation yet – may affect access to FBT concessions

13. NFP tax reform (cont'd) • Not-for-profit Sector Tax Concession Working Group • Consultation paper planned for late September 2012 release • 2 month consultation period • Final report probably March 2013

14. Contact Details Elizabeth Lucas Partner – Taxation Services P: 03 8663 6349 E: elizabeth.lucas@au.gt.com