The impending reforms to the Living Away From Home Allowance (LAFHA) will make it more difficult for financial institutions to recruit and retain staff, according to the 22 HR professionals who attended the recent eFinancialCareers roundtable in Sydney.

LAFHA has to date effectively allowed recipients to claim living costs tax free. But from 1 October this concession will be limited to employees who maintain a home for their own use in Australia, which they living away from for work. It will only apply for a maximum 12-month period. And it will no longer be available to 457 visa holders on the basis that they are temporarily living away from a home they maintain in a foreign country.

The attendees agreed that the new rules have already made Australia less appealing for overseas candidates and Australians looking to return home. “Australia is not so attractive without LAFHA and because of the strong dollar,” said one of the delegates, all of whom asked not to be named in this report.

A representative of a big four bank added that the LAFHA changes have compounded other talent-attraction problems. “If candidates are coming from a low-tax country in Asia then it’s hard to get their heads around the fact that the tax is more, their salary might be less, and it’s got more expensive in Sydney recently.”

But not every candidate will be put off coming to Australia because they can’t get LAFHA. “There will be some fallout, but it depends on personal circumstances. If they have no family to look after, they can bear the tax blow a bit better,” said an attendee.

Also pay attention to retention

Some existing employees will also lose access to the tax concession. A delegate from a big four auditing firm said some foreign staff had already returned home because of the reforms. “We have about 600 people receiving LAFHA and some have been asking for compensation.”

One bank has tasked a mobility team to consult its workforce about LAFHA. “But at the end of the day, the message from line managers is that it’s a tax issue, not a company issue. You have to be sensitive but you can’t change salaries because of tax changes that you don’t control.”

The roundtable also agreed that increasing the salaries of temporary residents in lieu of LAFHA would be detrimental to local staff and would create discontent. “It’s hard to tell Australian employees that they will get $10k less.”

One potential LAFHA bright spot? An HR professional from an international bank has seen an increase in 457-visa employees seeking permanent residency because the tax benefits of their current status are about to disappear.

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