The changes, which took effect on October 1, mean that workers will only qualify for the tax break if they live away from a home they own in Australia.

RSM Bird Cameron says that after months of uncertainty on how the new rule will work, federal legislators have backflipped on their initial indications.

It says the original concept of taxing the allowance under the income tax legislation has been scrapped and the LAFHA will be taxed only under the fringe benefits tax system.

"The key objective of the LAFHA reforms was to close the loophole that let individuals receive benefits despite not genuinely incurring the costs associated with maintaining two homes,” RSM Bird Cameron tax director Philip Price said.

"After months of uncertainty legislators have chosen to address the issue by shifting the tax burden of the amendments onto employers.

“This means that arrangements that do not represent bona fide LAFHA as now defined will be subject to FBT in the hands of employers."

Employer groups had warned that the LAFHA changes would drive talented engineers employed under 457 visas from Australia.

Consult Australia said that from today most workers in Australia on an employer-sponsored 457 visa would lose the tax benefits of living away from home allowances.

Announcing the changes last month, Assistant Treasurer David Bradbury said the LAFHA tax reforms would “ensure that this tax break can't be misused or exploited”

More detail on RSM Bird Cameron’s advice to employers can be found here