Mining to be hit hardest by LAFHA changes expected in Budget

2 May 2012

Mining to be hit hardest by LAFHA changes expected in Budget

The mining industry will be the hardest hit as a result of changes to living-away-from-home (LAFH) tax concessions expected in next week’s Federal Budget, according to Grant Thornton’s Energy & Resources’ Tax specialists.

Proposals already announced by way of a consultation paper would exclude visitors to Australia on temporary visas from any LAFH tax concessions, except fly-in fly-out arrangements and would shift allowances into the income tax net, with employees being required to claim deductions for their accommodation and food costs.

“This will add to the significant increase in tax costs of large mining projects, following the introduction of the carbon tax and minerals resource rent tax”, said Grant Thornton’s Brisbane based Energy & Resources’ Tax specialist, Tim Hands.

In addition to this, there are concerns the Government’s plans may discourage overseas workers planning relocate to Australia. With mining companies in Western Australia and Queensland in desperate need of specialist skilled workers, this could have serious ramifications for the Australian resources industry.

“The exclusion of the temporary visa holders from the concession is intended to create an even playing field with Australian workers, but that isn’t how it is likely to play out in the Energy and Resources sector, with a number of companies unable to find the specialist people they need locally.”

“The mining industry is having to recruit offshore to keep large projects moving. The proposed changes could mean a much higher cost of large projects and may make mining investment overseas more attractive than Australian projects,” Hands said.

Grant Thornton’s WA-based Energy and Resources tax expert Peter Hills agrees that whilst the fly-in-fly-out concessions to the LAFHA changes are aimed at appeasing the mining industry, due to overseas employees needing a base in Australia other than the mine site, these concessions may provide little relief for foreign workers.

On top of the formally announced proposals, there has been some recent speculation that the Government may announce a one year time limit for LAFH concessions and a requirement to prove the employee continues to own or rent their ‘home interstate’.

This is out of step with the reality of modern life and commercial arrangements as businesses moving people interstate or overseas often require a minimal of two years commitment to maximise the benefit of the high cost of the secondment. Grant Thornton’s FBT specialist Elizabeth Lucas also raised the issue that Government may not have considered that many employees these days do not have a formal cost of accommodation at home.

“In our view there should be no difference in the tax concession where an employer has to compensate this employee as compared to an employee who happens to own or rent their home. After all, if there is an additional cost, this is what the concession was originally intended to help defray,” Ms Lucas said.

According to Peter Hills, this is something that will be front of mind of mining companies in Western Australia and Queensland, where there is a desperate need of workers in the resources industry.
“Putting obstacles in the way of getting workers from other states to come across and help out appears to be counterproductive,” Hills said.

Hands confirms, “If the government is looking for an expansion of domestic fly in/fly out arrangements, these tax changes will assist with that, but they do not incentivise workers to move”.

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Emma Cooney
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E emma.cooney@au.gt.com