Prestige property landlords have been feeling the effects of changes to the Living Away From Home Allowance and Benefit for a while now.
The changes were initially flagged by the Federal Government in November last year, with further details provided in the May Budget. So although the changes formally came into effect on October 1, we’ve already seen a significant impact in the executive rental market and the bottom line has been a 10-20 per cent decline in rental returns.
As we all know, markets change and we need to adapt as best we can. For a while there, prestige landlords were enjoying higher than market rents for their properties directly due to the LAFHA. Companies who wanted employees to work elsewhere would offer them high end properties to live in as part of the incentive to go, and this drove up rents. Now, the rules have changed drastically and we won’t be seeing as much of this.
For those of you unfamiliar with LAFHA, let’s re-cap. There is a Living Away From Home Allowance and a Living Away From Home Benefit.
In both cases, the employer would then claim a tax concession for Allowances and Benefits paid to employees.
People receiving LAFHA could also rent out their home while they were away from it, thereby receiving rental income while still being eligible to receive the Allowance and/or Benefit.
There were many loopholes in the LAFHA that enabled people to ‘rort the system’. At the end of the day, taxpayers are paying for the LAFHA so the Gillard Government decided to change the rules to make it fairer.
Here’s a basic rundown of the changes. To receive LAFHA:
Today, landlords are getting used to lesser returns and tenants are enjoying the higher ground. However, it’s not all bad news for executive owners, with some positive changes beginning to occur in the market that will ultimately benefit them.
Our Head of Network Property Management, Michael Conolly, provides his point of view: “While the LAFHA changes aren’t great news for executive property owners, there are many factors that will drive the recovery of the executive market.
“These include a continued downward trend in interest rates, a continued increase in population growth and a recent upwards price movement in executive properties for sale.
“There will be an eventual movement in the exchange rate and when the Federal election takes place, we expect a return to confidence in Australia by overseas property investors and business. These factors will all combine to drive the recovery of the executive rental market.”
If you’d like to learn more about the LAFHA changes, visit www.ato.gov.au.
Disclaimer: This article is not legally binding taxation advice. Independent advice from a qualified tax advisor should be sought for your own personal circumstances.