Budget Review 2012–13 Index

Les Nielson

Previous announcement

In the 2011–12 Mid Year Economic and Financial Outlook (MYEFO) the government announced that it would act to stop the misuse of the Fringe Benefits Tax (FBT) exemption for living-away-from-home allowances and benefits by:

• requiring individuals to substantiate their actual expenditure on accommodation, and food beyond a statutory amount; and
• limiting access to the tax concession for temporary residents to those who maintain a home for their own use in Australia which they are living away from for work. This change ensured that a level playing field exists between temporary residents and permanent residents[1]

–      permanent residents were not required to maintain a residence in a location away from where they were currently working.

New announcement

As part of the 2012–13 Budget the government has extended these reforms as follows:

• limiting access to this concession for all employees (not just temporary residents) to those who maintain a home for their own use and which they are required to live away from for work,

–      under the Budget announcement both permanent and temporary residents are now required to maintain a residence within Australia other than where they are located for work, and

• providing the tax concession for a maximum of 12 months in respect of employees in any particular location.[2]

The additional savings flow from the newly announced 12 month limit on the application of this exemption, and the new requirement for permanent residents to maintain a residence in a location other than where they are working.

What are the total savings?

The following table shows the total savings projected to arise from these two announcements:

Table 1: Projected savings from reform of FBT tax concession for living away from home allowance, $m

	2011–12	2012–13	2013–14	2014–15	2015–16
MYEFO	0.5	218.0	220.0	242.0
2012–13 Budget	-	50.0	217.0	353.0	399.0
Total	0.5	268.0	437.0	595.0	399.0

Sources: Budget Paper No 2 2012–13 and MYEFO 2011–12

Over the forward estimates period these two measures are projected to produce about $1.7 bn in gross savings.

When it was first announced in the MYEFO in November 2011 this initiative was to apply to new arrangements from date of announcement and existing arrangements from 1 July 2012. The government has announced that the additional Budget 2012–13 measures will apply from 1 July 2012 for arrangements entered into after 7:30 pm on 8 May 2012 and from 1 July 2014 for arrangements in force before 8 May 2012 after taking into account the MYEFO changes. On 15 May 2012 the Assistant Treasurer issued a media release which further explained these details.[3]

This measure initially arose from comments made during the Tax Forum held in Canberra in 2011.[4] The total amount of tax-free living away from home allowance reported by employers to the Australian Taxation Office increased from $162 million in 2004–05 to $740 million in 2010–11.[5] This is an obvious drain on revenue as these amounts are effectively a tax deduction to the employer and not taxed in the hands of the employee.

Both the MYEFO and the 2012–13 Budget announcements were careful to note that the above measures would not apply to fly-in, fly-out arrangements or to allowances paid to employees travelling for work reasons for short periods (defined as usually being less than 21 days).

As at the date of writing there has been no specific reaction to this proposal.

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