Chapter 1 Introduction
Referral of the Bill
On 28 June 2012 the Selection Committee referred the Tax Laws Amendment
(2012 Measures No. 4) Bill 2012 (the Bill) to the Standing Committee on
Economics for inquiry and report.
Origins and purpose of the Bill
The Bill contains three schedules which address separate matters. Schedule
1 amends the Fringe Benefits Tax Assessment Act 1986 (FBTA Act) and
the Income Tax Assessment Act 1997 (ITA Act 1997) to reform the taxation
treatment of living-away-from-home (LAFH) allowances and benefits and the
associated tax concession. Schedule 2 amends A New Tax System (Goods
and Services Tax) Act 1999 to clarify the goods and services tax
consequences when a representative of an incapacitated entity is a creditor of
that entity. Schedule 3 amends the Tax Laws Amendment (2012 Measures
No. 2) Act 2012 to ensure that no interest is payable if an overpayment of
income tax arises, or if additional tax becomes payable. As the majority of
evidence relates to Schedule 1 of the Bill the report focuses on this issue.
The report of the Australia’s Future Tax System Review
recommended that ‘all fringe benefit tax (FBT) exemptions should be reviewed to
determine their continuing appropriateness’.
Under existing law, the FBTA Act provides concessional taxation
treatment of benefits provided to employees who are required to live away from
their usual place of residence to undertake employment elsewhere. The
Explanatory Memorandum (EM) notes that ‘this differs from other allowances paid
to an employee which are assessable income to the employee’.
The EM states:
Under the fringe benefits tax (FBT) law, a LAFH allowance is
an allowance paid by an employer to an employee to compensate for additional
expenses incurred and any disadvantages suffered because the employee is
required to live away from their usual place of residence in order to perform
their employment duties. The allowance is intended to cover reasonable and
additional accommodation and food and drink expenses. Additional expenses do
not include expenses the employee would be entitled to claim as an income tax
deduction. Specific provisions cover accommodation, food or expense payments provided
by the employer.
A tax concession for LAFH allowances was introduced in 1945. The EM to
the former income tax law noted that a:
LAFH allowance was intended to be an allowance objectively
determined by a wage fixing authority, for the purposes of compensating an
employee for additional expenditure incurred on food and accommodation where an
employee is required by their current employer to live away from their usual
place of residence, where they are maintaining a residence.
In 1986 LAFH allowances were moved to the FBTA Act, and the incidence of
tax moved to the employer as a fringe benefit.
During the last decade, the use of the tax concession for LAFH
allowances and benefits has significantly increased. The EM states that the tax
concession is being interpreted broadly which has allowed certain groups to
exploit and misuse the tax concession.
On 29 November 2011, as part of the Mid-Year Economic and Fiscal Outlook
(MYEFO), the Treasurer announced reforms to the tax concession for LAFH
allowances and benefits. The Treasurer, the Hon Wayne Swan MP, noted that the
‘tax exemption is being increasingly misused by a narrow group of people,
particularly highly paid executives and foreign workers, at the expense of
Australian taxpayers’. The Treasurer stated:
Rorting of this tax exemption was one of the issues raised at
the Tax Forum, and has seen the total amount of tax-free living-away-from-home
allowance reported by employers to the Australian Taxation Office increase from
$162 million in 2004-05 to $740 million in 2010-11.
The Assistant Treasurer, the Hon David Bradbury MP, as part of his
second reading speech, also raised concerns about the exploitation and misuse
of the tax concession, and noted that the current tax rules have a number of
deficiencies. The Assistant Treasurer stated:
Firstly, people are able to access the tax concession even if
they are not maintaining another home in Australia. This means that people who
have sold their old home, or are renting it out, can still access the tax
Secondly, people are able to receive the tax concession in
relation to cash payments in excess of the actual amount they spend on
accommodation and food.
And thirdly, people are able to access what was meant to be a
temporary tax concession for long periods—often three or four years or more.
The Assistant Treasurer confirmed that, under the new legislation, ‘temporary
residents will need to be maintaining a home for their own use in Australia
that they are living away from for work to be able to access the tax
concession’. The same requirement will
apply to permanent residents. In addition, all individuals will need to
substantiate their actual expenditure on accommodation and food. There will be
a 12 month time limit on how long people, other than fly-in fly-out and
drive-in drive-out workers, can access the tax concession.
Date of effect and transitional provisions
The amendments to LAFH allowances and benefits and the associated tax
concession were announced in the 2011-12 MYEFO and the 2012-13 Budget.
Subject to transitional rules, the reforms will apply from 1 October
For permanent residents, receiving LAFH allowances and benefits, who
have employment arrangements in place prior to 7.30pm (AEST) on 8 May 2012
transitional rules will apply. This means they will not be subject to the
requirement to maintain a home in Australia for their own use at all times and
the 12 month time limit will not apply until the earlier of 1 July 2014 or the
date a new or altered employment contract is entered into.
Transitional rules will also apply to temporary residents, receiving LAFH
allowances and benefits, who had employment arrangements in place prior to
7.30pm (AEST) on 8 May 2012 and who are maintaining a home in Australia for
their own use at all times. This means the 12 month time limit will not apply
until the earlier of 1 July 2014 or the date a new or altered employment
contract is entered into.
On 29 November 2011 the Government announced reforms to the tax
treatment of LAFH allowances and benefits and released a consultation paper.
Submissions were sought by 3 February 2012. Treasury received 106 submissions
and seven confidential submissions.
On 15 May 2012 the Government commenced its second round of consultation
by releasing exposure draft legislation. Submissions were sought by 29 May 2012.
The Assistant Treasurer noted that ‘in response to the submissions
received, the Government has taken the decision to defer the start date of the
reforms from 1 July 2012 to 1 October 2012’.
The Assistant Treasure advised that ‘some technical changes have also
been made to the amendments in response to feedback on the exposure draft
Objectives and scope of the inquiry
The aim of the inquiry is to investigate the adequacy of the Bill in
achieving its policy objectives and, where possible, identify any unintended
On 29 June 2012, the committee Chair,
Ms Julie Owens MP, issued a media release announcing the inquiry and called for
submissions to the inquiry.
The committee received 37 submissions and one exhibit for this inquiry,
which are listed in Appendix A. It held a roundtable discussion in Canberra on
26 July 2012. The participants are listed in Appendix B. The submissions,
exhibit and transcript of evidence are available on the committee’s website.