The 2012 LAFHA reforms removed a significant tax benefit for 457 visa workers, and their borrowing power felt it immediately.
The Living Away From Home Allowance, or LAFHA, was a tax-free income component that made Australia an attractive destination for skilled temporary workers. From 1 July 2012, the rules changed significantly. Most 457 business visa holders lost access to the LAFHA 457 visa benefit entirely, and the full value of their income became subject to standard tax rates.
For workers whose salary packages included LAFHA, this meant a meaningful reduction in take-home pay. Less take-home pay means less borrowing capacity when applying for a home loan. If you are on a 457 visa and thinking about buying property in Australia, read our Australian home loan guide to understand how lenders assess temporary residents.
What is LAFHA?
LAFHA was an allowance paid to employees to compensate for the additional living expenses of working away from their usual home. Because it was tax-free, it effectively boosted an employee’s net income without increasing their gross salary. For overseas workers relocating to Australia on temporary visas, LAFHA was often built directly into their salary packages.
The allowance applied broadly before the reforms. Australian citizens working interstate, permanent residents who had relocated for work and overseas workers on 457 visas were all eligible in the right circumstances.
For foreign workers especially, LAFHA was a genuine financial incentive to take up skilled roles in Australia. Fields such as information technology, marketing and professional services commonly used LAFHA as part of competitive salary packages for international hires.
What changed
From 1 July 2012, LAFHA fringe benefit concessions were restricted to employees who:
For most 457 visa holders who relocated from overseas, this requirement could not be met. They did not have an established home base in Australia that they were living away from. The policy change effectively removed their eligibility.
Australian citizens and permanent residents who had entered into a LAFHA arrangement before 8 May 2012 were eligible for a transitional period under the old rules until 1 July 2014. After that, the new rules applied universally.
The motivation behind the changes was to prevent overseas workers on temporary visas from using LAFHA to defer or avoid transitioning to permanent residency, and to create a more level playing field with Australian workers who had no access to equivalent tax concessions.
Impact on borrowing
Lenders calculate how much they will lend based on your verified income, minus your expenses and other financial commitments. When the LAFHA component is removed from a 457 visa holder’s income, their assessable income drops. That directly reduces how much a lender is willing to approve.
This is a direct example of why income changes directly affect how much lenders will approve. A reduction in declared income shifts the loan serviceability calculation, potentially moving some borrowers below the threshold for the loan amount they were targeting.
For families on the 457 visa, the income reduction was often substantial. LAFHA could represent a significant portion of a packaged salary, particularly for workers receiving accommodation allowances as part of their relocation. Losing that tax-free component meant a higher effective tax bill and a lower net income, both of which lenders factor into their assessment.
To see how your revised income affects what you can borrow, use our borrowing power calculator as a starting point.
What you can do
If the LAFHA changes affected your income, there are several practical steps to consider:
Even as a temporary resident, it is possible to borrow up to 95% of a property’s value with the right lender and circumstances. The key is presenting your application accurately and working with a broker who can navigate the lender landscape on your behalf.
Common questions
Q: Can I still claim LAFHA on a 457 visa after July 2012?
Only in limited circumstances. You must own or rent a home in Australia as your usual place of residence and be required to live away from it for work purposes. For most overseas workers who relocated to Australia for their job, this condition cannot be met. If you have a property in Australia and your employer sends you to another city temporarily, you may still qualify.
Q: Will losing LAFHA stop me from getting a home loan?
Not necessarily. Losing LAFHA reduces your assessable income, which in turn reduces your borrowing capacity. However, some lenders are experienced with temporary resident applications and will assess your situation holistically. Depending on your income level, deposit size and financial commitments, you may still qualify for a competitive home loan.
Q: How do lenders view LAFHA income if I still receive it?
If you continue to receive LAFHA legitimately under the post-2012 rules, some lenders will include it as part of your income assessment. Policies vary between lenders. A broker who specialises in non-resident lending can identify which lenders will treat your LAFHA income most favourably and help you structure your application accordingly.