• Tax Alert: Tax office further restricts Living Away From Home Allowance concessions

In accordance with tax determination TD 2013/4 published by the Tax Office recently the “Reasonable Food Component” applicable on or after 1 April 2013 will no longer be means tested based on the employee’s salary as had been originally indicated.

In the original draft of the determination (TD 2012/D8), the Tax Office indicated that there would be three tiers of the reasonable food component which may be provided without further substantiation. These three tiers were based on the level of the employee’s annual salary. Where an employee is accompanied by a family member the reasonable food component was also proposed to be determined by the relevant multiplying factor. Where the employee was on an overseas assignment the reasonable food component would also be dependent on the cost profile of the host location as well as the employee’s annual salary.

In the final tax determination published today, the reasonable food component for domestic assignees will be determined by a single rate. This is consistent with the methodology adopted in prior years, however, the applicable rate has in some cases reduced. The examples detailed in the table below illustrate how this will lead to a reduction in the amount that can be paid to some domestic assignee’s whom are required to live away from home for the purposes of work:

 

Post 1 April 2013

  • One adult
    Reasonable food component per week = $223
    Maximum exept component per week = $191
  • Two adults
    Reasonable food component per week = $350
    Maximum exept component per week = $266
  • Two adults and two children
    Reasonable food component per week = $468
    Maximum exept component per week = $342

Pre 31 March

  • One adult
    Reasonable food component per week = $250
    Maximum exept component per week = $208
  • Two adults
    Reasonable food component per week = $400
    Maximum exept component per week = $316
  • Two adults and two children
  • Reasonable food component per week = $450
    Maximum exept component per week = $324

There are measures within the tax determination that indicate that the Commissioner may allow the continuation of certain arrangements that are in place as at 27 February 2013 to continue, provided certain conditions are met.

The reasonable food rates available for assignees who are living away from home in an overseas location will be determined by location and are similar to the middle amount per the previously released draft determination. These reasonable food rates vary from $137 to $510 per week dependant on the cost profile of the host location. If the assignee is accompanied by other family members this amount may be multiplied by the published factor.

Practical issues

Because of the reduction in the reasonable rate, there is little scope to compensate employees who are required to live in high cost locations within Australia. The only method available to compensate these assignee’s is for them to maintain records of all additional expenditure incurred as a result of living away from home, which will be both onerous and expensive.