04:05
ISSUE 4
The effect of Salary Packaging the EC is that the employee pays tax on the EC at their marginal rate, rather than being taxed at the FBT rate of 47%. Salary Packaging involves a lot of “moving parts” and requires a close working relationship between FBT and Payroll, together with clear and up-to- date written Salary Packaging Policies and Processes. As always, employees must be encouraged to seek their own tax and financial advice before entering into a Salary Packaging arrangement. Living Away From Home Allowances (LAFHA) LAFHA is the payment of a tax-free allowance, usually via Payroll, to an employee to compensate the employee for the non-deductible expenses (accommodation and meals) incurred when Living Away From Home. LAFHA is the only allowance that is taxed via the FBT regime. LAFHA was historically a common (and very popular) benefit provided to employees on temporary working visas and local employees on temporary secondment/relocation arrangements. However, significant changes were made to the FBT law in 2011 and now LAFH arrangements require the employee to: 1. Maintain a home in Australia for the duration of the LAFH assignment; 2. Be limited on the tax concession to a maximum 12 months at any one location; and 3. Substantiate their actual expenditure on accommodation and food beyond a statutory amount.
The 2011 changes effectively curtailed the ability for an employer to provide an LAFH arrangement (free of FBT) to an inbound temporary visa holder. Importantly, the new requirements apply where an employee on an LAFH arrangement is reimbursed for LAFH expenses or directly provided with LAFH benefits. LAFH provided in this way are generally not cited by Payroll. The above is intended to provide some insight into the relationships and crossovers between Payroll and FBT – a good working relationship, and understanding of each other’s needs are crucial from a compliance, governance and employer-employee perspective.
Author: Paul Mather
Paul Mather has over 25 years of experience
dealing with Fringe Benefits Tax, Salary Packaging and Employment Taxes in Australia. Paul is a current member of the ATO’s FBT Working Group and was a member of the former ATO National Tax Liaison Group (NTLG) Fringe Benefits Tax Subcommittee (from 2005 to 2013). Prior to creating FBT Solutions in 2009, Paul worked in the Employment Taxes and Indirect Taxes teams for 10 years at EY. Paul has also previously worked in commercial roles in Australia and London, as well as at Chartered Accounting firms PKF and BDO in New Zealand.
Made with FlippingBook - Online magazine maker