Domestic workers who currently receive tax-free, living-away-from-home allowances risk paying income tax on them from 1 July this year if they can’t fully substantiate costs in their tax returns.
The reforms, while designed to stop perceived rorting in the current system, will largely affect those people working for building and construction companies that have large numbers of employees that have relocated temporarily on large-scale, long-term projects, said Pitcher Partners Senior Tax Manager Gary Matthews.
Matthews said the reforms also impose much greater burdens on employees to prove that they are legitimately living away from home.
The Federal Government announced reforms to living-away-from-home allowances and related benefits on 29 November 2011, as part of its Mid-Year Economic and Fiscal Outlook, which are due to take effect from 1 July 2012.
The proposals have since gone through a consultation phase, and are now awaiting the Government’s response and its draft legislation.
Matthews said initial reaction to the proposals focused heavily on measures to effectively remove access to living-away-from-home benefits and allowances for most overseas employees.
However, a less publicised, but nonetheless important change, is that domestic employees in receipt of living-away-from-home allowances will have to declare them in their personal tax returns and substantiate any deductions for food and accommodation.
“If employees can’t fully substantiate their living-away-from-home allowances, from 1 July this year they will pay tax on the unsubstantiated portion.
“This is a strong shift away from the present system whereby the allowances are tax free in the hands of the employees and require no substantiation on their part. Employers on the other hand are currently responsible for ensuring the allowances are paid correctly and for any fringe benefits tax consequences.”
