Bye bye LAFHA, no more gravy train

kdevitt

Just got an email from our legal advisors who have confirmed it is definitely gone for 457 holders on July this year.

Nick Diamond

I'm just gonna keep shtum and hope for the best

are 457 holders also going to be paying more tax (regardless of the lafha effect) next financial year?

Feelgood

kdevitt wrote: »

Just got an email from our legal advisors who have confirmed it is definitely gone for 457 holders on July this year.

I just heard a similar statement from my payroll people, they are however double checking that this is correct.

It wasn't good news in November, but when someone throws you a bone like they did at this weeks budget and then rebutes it - that makes it even worse news. :mad:

I think there will be a lot of Irish comrades considering a move back to the northern hemisphere unfortuntely.

RaoulDuke66

Do you know what they're basing that on? Take it they've spoken to the Treasury. However, if the budget statement on dates is taken to apply only to the additional reform, then in fact there has been NO announcement on the dates for the previously consulted upon reforms as there has been no government response to the consultation responses they recevied. So does their reponse to telephone enquiries now form the official response to the consultation responses they received?
I wish you all the best wherever you're forced to go.

Feelgood

However:

The reforms will apply from 1 July 2012 for arrangements entered into after 7.30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to that time.

Taken from the treasury ministers portal:
http://www.treasurer.gov.au/wmsDisplayDocs.aspx?doc=pressreleases/2012/034.htm&PageID=003&min=wms&Year=&DocType=0

Is still causing me confusion.

6ix

I'm aware that this affects people a lot in terms of their take-home pay, and people have become accustomed to having the extra cash every month... but is this not just the end of the 'gravy train' rather than making it really unaffordable to live here without LAFHA?

I've only going through the process of moving onto a 457 now so I won't be getting LAFHA. I would've loved to get it of course, but it won't happen now. Regardless though, I'm still better off in terms of pay than I would be in Ireland and the UK, and I think that's the case for a lot of people here. In general, LAFHA seems to have been like a bonus to most of the people I know rather than being the difference between surviving and falling below the poverty line. That's definitely what it would've been for me anyway.

To be fair, I know everyone's situation is different and you can't generalise, but I'm just curious. Most of the people I know here are mid-late 20's with no kids or mortgage etc... so maybe that's the reason I see it that way.

RaoulDuke66

6ix wrote: »

I'm aware that this affects people a lot in terms of their take-home pay, and people have become accustomed to having the extra cash every month... but is this not just the end of the 'gravy train' rather than making it really unaffordable to live here without LAFHA?

I've only going through the process of moving onto a 457 now so I won't be getting LAFHA. I would've loved to get it of course, but it won't happen now. Regardless though, I'm still better off in terms of pay than I would be in Ireland and the UK, and I think that's the case for a lot of people here. In general, LAFHA seems to have been like a bonus to most of the people I know rather than being the difference between surviving and falling below the poverty line. That's definitely what it would've been for me anyway.

To be fair, I know everyone's situation is different and you can't generalise, but I'm just curious. Most of the people I know here are mid-late 20's with no kids or mortgage etc... so maybe that's the reason I see it that way.

For my wife and I, it's the difference between being able to live in Australia and not. Our decision to come here, made in October, was based solely on being able to afford to live. I feel worse for people with kids who can't afford to stay and can't afford to leave. Did anyone ask the Treasury what those people are supposed to do?

hussey

hussey wrote: »

I was sent it from a guy at Macquarie - I have asked him where he got it from.

kdevitt wrote: »

Yeah its copied from lafha.com.au - the guys who run the site have just posted on linkedin that they need to update it now after a discussion with treasury, and that its not good news for 457 holders.

I just got this from my mate

I was told by my payroll company if I don’t apply for PR and I don’t change current sponsorship arrangements then I am eligible until 1 July 2014

dave3004

Oh god I hope we keep it.

Lease on apt is up in September so will be moving out I reckon if we don't.

Stress of finding somewhere to live.

Can anyone work out how much it will affect me? I'm on about 60k a year (excl Super) I only get LAFHA on the 300 rent I pay weekly.

kdevitt

RaoulDuke66 wrote: »

For my wife and I, it's the difference between being able to live in Australia and not. Our decision to come here, made in October, was based solely on being able to afford to live. I feel worse for people with kids who can't afford to stay and can't afford to leave.

Same here to be honest - we had a kid here 8 months after we arrived (do the math!) so my wife hasn't been able to work. Being temp resident means we get no support for medical bills and we can't get any childcare rebate. Still have plenty of bills to pay in Ireland, so if it does disappear we are actively looking to move home.

RaoulDuke66

dave3004 wrote: »

Oh god I hope we keep it.

Lease on apt is up in September so will be moving out I reckon if we don't.

Stress of finding somewhere to live.

Can anyone work out how much it will affect me? I'm on about 60k a year (excl Super) I only get LAFHA on the 300 rent I pay weekly.

I think you'll be getting it on food as well. You should double-check. If so, it'll cost you $9000 a year from your pocket. Will that force you to leave?

RaoulDuke66

kdevitt wrote: »

Same here to be honest - we had a kid here 8 months after we arrived (do the math!) so my wife hasn't been able to work. Being temp resident means we get no support for medical bills and we can't get any childcare rebate. Still have plenty of bills to pay in Ireland, so if it does disappear we are actively looking to move home.

Mate, if you have a kid to support as well, then your problems vastly outweigh mine. I feel so bad for you. It seems to be the way of western societies - take money away from working families to give to people who don't work - I thought I'd left that behind when I left the UK.

dave3004

No not getting it on food. Thought it would be around the 10k mark though. Nightmare

I think this is a good point below which was written by somebody on the previous of this thread in regard to the time given to people to fix their financial arrangements.......It shouldnt matter whether you are on a 457 or you are an Ozzie Resident......



the reforms will apply from 1 July 2014 for arrangements entered into prior to the budget.
So regardless of what any accountant or person answering the phone at the treasury says, they've announed that the reforms will apply from 1 July 2014 for arrangements entered into prior to the budget.
Frankly, common sense tells anyone that 457 visa holders under existing arrangements must be afforded the same time as Australians to rearrange their affairs, living arrangements and employment. If that wasn't the case, many 457 holders would be in a position where they couldn't afford to stay in Australia but couldn't afford to leave due to contractual employment penalties (repayment of relocation costs etc). The queue at HM's foreign and commonwealth office would be down the street.

Legend100

Just finished a seminar with KPMG this afternoon, they said that Treasury have made it clear to them it is gone for all temporary visitors from 1st July 2012

:(:(

mandrake04

Now would be a good time to get PR and get

(a) better paying occupation
(b) childcare rebate
(c) Medicare
(d) cheaper health insurance
(e) no school fees
(f) Family Tax credits

bakedalaska

You said it mandrake, I think il be talking to the employer about ENS soon. No point staying temp. if you lose the lafha!!

Feelgood

bakedalaska wrote: »

You said it mandrake, I think il be talking to the employer about ENS soon. No point staying temp. if you lose the lafha!!

Can you actually go ENS (with a skills assessment), but without doing 2 years on a 457?

Traq

Yep, you just need to get a skills assessment. The two years on a 457 just negates the requirement for the skills assessment.

RaoulDuke66

All, I’m posting this message on a number of forums as it will provide 100% clarity on what is happening with regard to LAFHA for overseas workers.

I spoke with Rebecca Fanning, Wayne Swann’s research advisor on the LAFHA reforms. I can only recount the conversation I had with her. You may want to do your own due diligence on the matter. And, up front, I want to praise her for her honesty and taking the time to come back to me after office hours, regardless of the dirty work she’s being made to do.

Anyway, she conceded that Budget paper 2 does in fact say that all LAFHA reforms will be subject to a transitional period. However, she apologised for that, and said that it meant to say that only Australians will be allowed 2 years to re-arrange their financial affairs to an affordable position. Foreigners are left up a creek from 1 July 2012.

However, the reason there has been confusion on this is because Wayne Swann and his Treasury haven’t been 100% honest about the nature of the reforms in respect of overseas workers. What we’ve all missed (i.e. what they’ve tried to hide) is that they basically view the overseas worker LAFHA budgetary savings as a direct pass-through cost to business. Of course, I can understand why Swann wouldn’t say that, given how much he pretended to be helping Australian business in the budget. He’ll no doubt view it as a tax on nasty foreign companies - but I, like thousands of others who now can’t afford to live here/leave, work for an Australian company.

The reason I say this regarding the nature of the reforms is because the Treasury told me that they expected all employees’ losses to be met by employers through renegotiated employment contracts. I asked what happens if the employer refuses to renegotiate to a liveable wage for that individual/family, leaving the employee unable to afford to stay in Australia but unable to afford to go. She said that shouldn’t happen – it is up to the employer to meet all losses incurred due to the reforms.

I also pointed out that whilst the changes were intended to level the playing field between Australian employees and overseas employees, it costs an overseas employee thousands more per year to live and work here (health care, schooling etc), and therefore overseas workers (especially families) will be significantly worse off than Australians in the same job with the same company. She said that the Treasury expected companies to pay additional amounts to overseas workers to meet those additional costs.

Further, I asked when had notice been given that the proposed changes outlined in November were confirmed. She said that items set out in the mid-year outlook and consultation paper in November had the same effect as if set out in the budget. In other words, employers should have known exactly what was happening back in November, and should have been renegotiating overseas employees’ contracts back then to ensure that they didn’t lose anything. I took from her the Treasury view that, if an employer hasn’t renegotiated their contracts for overseas workers, they’ve been deliberately pulling the wool over the eyes of those employees, and they need to re-package salaries now.

All of this will be confirmed when the draft legislation and a press release is issued on Monday, although of course they’ll omit the bit about this being intended as a pass-through cost to nasty horrible foreign companies (although I understand that HM’s foreign office sees it as exactly that).

In summary, the Treasury view:
- a 2 year transitional period for Australian workers;
- nothing for overseas workers;
- businesses to provide repackaged contracts to all affected overseas workers to meet all additional costs.

My view would be that everyone affected should, as a first step, gather all information available to them before deciding how to proceed in their own particular circumstances:
- approach their employer and at least give them the benefit of this information, that the Treasury intends the company to pick up the employee’s losses;
- confirm the position regarding flights home (which the employer is supposed to pay for), so that the position on that is clear with them;
- confirm the position regarding employment contract termination costs (you may have to pay penalties within a certain period of having entered into the contract); and
- find out whether your employer has transfer opportunities to countries looking to have skilled/professional overseas labour (of course, you’ll want to stay clear of countries which have a history of these types of tax grabs from foreigners).

On a positive note, this is a great opportunity for businesses outside of Australia to recruit skilled and professional employees, and I have no doubt that anyone on a 457 will walk into a job abroad on a liveable wage for them and their family.

RaoulDuke66

Update: giving the transitional period to Australians but not to British workers contravenes Article 25 of the UK/Australia Double Taxation Convention 2003 -

Nationals of a Contracting State shall not be subjected in the other Contracting
State to any taxation or any requirement connected therewith, which is other or more
burdensome than the taxation and connected requirements to which nationals of that
other State in the same circumstances, in particular with respect to residence, are or

may be subjected.
UK nationals need to contact the foreign office asap http://ukinaustralia.fco.gov.uk/en/help-for-british-nationals

Mikester21

Ah I cant believe it, was so happy this morning when I saw the Irish echo article, then came on here. What a joke! i have no idea whats happening, will just wait and see what happens in July

zweton

I inquired about LAFHA the other day in work to see if i would be eligable for it, this is the email they sent back.

In short, LAFHA is an Australian Tax Office driven initiative that allows employers to provide an employee who has had to temporarily relocate for their role with a part of their salary tax free, therefore the net pay after deductions increases.

Unfortunately, considering you are on a working holiday visa however we cannot administer this to you as the general view of those on 417 visas is that the predominant reason for being in Australia is for travel rather than work, and so both you and Entity would be at a high risk of getting audited by the ATO so we’ve always steered very clear of this.

I can’t remember the specific visa you mentioned you had applied for beyond your working holiday visa, however I believe is was a type of permanent residency visa so if this is the case you will also not be eligible for LAFHA once this kicks in, as those or permanent resident visas are viewed as no longer being here ‘temporarily’.

Additionally, the release of the Federal Budget which was announced earlier this week included changes to LAFHA, and may result in further restrictions to those who are eligible to claim, potentially restricting all foreign nationals regardless of their visa

RaoulDuke66

And so the exodus begins...
http://winawer.org/blog/

RaoulDuke66

Concerned individuals who contacted the Treasury last week were told that a press release and exposure draft legislation in relation to LAFHA reform would be released on 14 May 2012 to clarify the chaos caused by Wayne Swann's less than transparent Budget Paper 2. This has not materialised, leaving worried 457 workers and their families in the dark once again.

However, I have no doubt that this is as a result of various legal firms, accountancy firms and foreign offices, pointing out the obvious illegality of targeting 457 workers in an immediate salary grab whilst affording Australian workers the obviously required transitional period to re-arrange their existing unbreakable financial and employment obligations.

The source of the illegality is the breach of Australia's tax treaties with other nations, all of which contain non-discrimination provisions applicable to the treatment of income tax and FBT. The wording in all such treaties is substantially as follows:-

"Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected."

The reforms breach all of these treaties because, for the first two years, only foreign workers under existing arrangements will be required to show that they maintain a home for their own use in Australia. Australians under existing arrangements will not be required to do this until July 2014.

The point has nothing to with the benefits received or not received by foreign workers living in Australia.

There has also been a spectacular failure to follow government guidelines in relation to consultation with stakeholders:

"Policy agencies need to...provide feedback on how they have taken the consultation responses into consideration."

digiman

Has there being any update on this at all? So much uncertainty and its only 6 weeks away to that dreaded paycheck

Legend100

Treasury released an exposure draft on it yesterday confirming our worst fears that the 2 year transtionary period is only for PR or for temporary residents who maintain a home in Australia.

The public can respond up to the 29th May but after all the submissions that went in since November, it seems pointless at this stage

http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Fringe-Benefits-Tax-FBT-Reform-living-away-from-home-benefits

RaoulDuke66

The positive news for temporary residents is that the relevant transitional elements as they are set out in the exposure draft legislation (Tax Laws Amendments (2012 Measures No.3) Bill 2012: deducting expenses for living away from home) are unlawful, as they breach all of Australia's double-taxation treaties. These treaties are incorporated into Australian domestic law through the International Tax Agreements Act 1953.

This is because, in respect of existing LAFHA arrangements until July 2014, temporary residents and foreign residents will be subject to an additional restriction to which permanent residents will not be subject – namely the requirement to maintain a dwelling in Australia – in breach of the non-discrimination clauses in each treaty.

Taking the UK as an example, this contravenes Article 25.1 of the UK/Australia Double Taxation Convention, because it is subjecting UK nationals to requirements connected with income tax/FBT which is "other" and "more burdensome" than requirements to which Australian nationals are subject in the same circumstances, "in particular with respect to residence".

Further excellent news for UK nationals is that the Convention with the UK is the first Australian tax treaty to contain a non-discrimination article (Article 26) which gives taxpayers private rights of appeal. UK nationals have a direct right to appeal to the Australian Competent Authority, whose role includes assisting people who believe that the actions of Australia result or may result in taxation that is not in accordance with a particular tax treaty.

In addition to posting this information on other forums to help people elsewhere, UK nationals who wish to oppose the discriminatory transitional arrangements, may wish to include the following material in their consultation responses (to fbt@treasury.gov.au), in their communications to the Australian Competent Authority (australiancompetentauthority@ato.gov.au), and in their communications to the further relevant contacts I've listed (see below)…


"In respect of the Tax Laws Amendments (2012 Measures No.3) Bill 2012: deducting expenses for living away from home exposure draft (the "Exposure Draft"), proposed provisions in relation to Transitional – existing employment arrangements are in breach of the UK/Australia Double Taxation Convention (the "Convention") applicable to both income tax and fringe benefits tax, incorporated into Australian domestic law through the International Tax Agreements Act 1953.

Article 25.1 of the Convention, states:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

According to the ATO:

Article 25 (Non-discrimination) is included to protect nationals of one country from tax discrimination in the other country.

According to the HMRC explanatory memorandum:

…this Article provides that neither country shall impose discriminatory taxes (or requirements) on the nationals, permanent establishments and enterprises of the other.

In respect of existing LAFHA arrangements until July 2014, as set out in the Exposure Draft, "temporary residents" and "foreign residents" (which includes UK 457 visa holders) will be subject to an additional restriction to which Australian permanent residents will not be subject – namely the requirement to maintain a dwelling in Australia – in breach of the non-discrimination clause.

The result is that on 1 July 2012, UK nationals already working in Australia on 457 visas under LAFHA arrangements, will overnight see a decrease in their take home pay of up to 40% and possible immediate financial ruin, whereas the Australian Government has seen fit to put full transitional arrangements in place for Australians with existing LAFHA arrangements.

In his justifications, it is entirely disingenuous for the Treasurer (and those under his authority) to continually suggest that all 457 visa recipients of LAFHA are highly-paid executives. The Temporary Skilled Migration Income Threshold is $49,330, compared to the average Australian full-time salary of $68,791(Q3 2011).

It is unacceptable for the Treasurer to continually suggest that foreign workers (including UK nationals) who receive LAFHA are "rorting" (Australian slang, meaning "cheating" or "defrauding") the system. The ATO website currently advises UK expatriate employees on 457 visas that they are entirely entitled to claim LAFHA if eligible under existing arrangements:

Examples of employees on appointments of finite duration who will generally be living away from their usual places of residence are foreign nationals employed in Australia (expatriate employees)... In the case of expatriate employees having to reside in Australia for the term of their employment, each year we publish a tax determination outlining what we consider a reasonable food component.

The proposed discriminatory transitional arrangements, based on the Treasurer's disingenuous and offensive characterisation of UK nationals claiming LAFHA in line with ATO guidance, breach Australia's obligations under the Convention and conflict with its International Tax Agreements Act 1953. Existing Australian domestic law and treaty obligations require that the transitional LAFHA arrangements applicable to July 2014, must be applied to UK nationals working in Australia on 457 visas in the same way as they will apply to Australians.

In view of the Australian Government's failure (in breach of its own guidelines on public consultation) to demonstrate how previous consultation responses to the Assistant Treasurer's November 2011 consultation paper on LAFHA reform have been taken account of in the Exposure Draft (which responses explained inter alia that the Australian Government should not leave UK nationals who are tied into existing employment contracts and financial arrangements in Australia, to overnight financial ruin), it has been necessary to copy this consultation response to the following relevant parties:

• the Australian Competent Authority at australiancompetentauthority@ato.gov.au;
• Prime Minister, David Cameron, at camerond@parliament.uk;
• First Secretary of State, Secretary of State for Foreign and Commonwealth Affairs, William Hague, at haguew@parliament.uk;
• Deputy Prime Minister, Nick Clegg, at nick.clegg.mp@parliament.uk;
• Leader of the Opposition, Ed Miliband, at ed.miliband.mp@parliament.uk;
• Shadow Foreign Secretary, Douglas Alexander, at alexanderd@parliament.uk;
• the Foreign and Commonwealth Office, at http://www.fco.gov.uk/en/contact-us;
• Leader of the Australian Opposition, Tony Abbott, at Tony.Abbott.MP@aph.gov.au; and
• Australian Shadow Treasurer, Joe Hockey, at joe@joehockey.com."

troels

Great post, I have lodged an appeal as suggested.

Mikester21

I notice this is all in respect to the UK, what about Irish?

kdevitt

Mikester21 wrote: »

I notice this is all in respect to the UK, what about Irish?

I think our tax treaty is pretty half arsed in comparison to the UK one to be honest, but if they're forced to back down based on provisions in the UK treaty, it would more than likely be good news for all holders. Not holding my breath though!