The Tax Laws Amendment (2012 Measures No. 4) Bill 2012, passed by both houses of federal Parliament on Wednesday, means LAFHA will now only be reserved for people who legitimately maintain a home in Australia.

Consult Australia – the industry association for professional services firms in the built and natural environment – expects the decision will drive many of Australia’s highly skilled professionals, whose salaries have been supported by LAFHA, out of the country.

The firm predicts up to 8% of workers could leave Australia following the decision.

Consult Australia chief executive officer Megan Motto fears the sudden implementation of the reforms will have a devastating impact on industry and the wider Australian economy.

“Some of the consulting firms we represent recruit approximately 15 per cent of their workforce from overseas due to the current skills shortage,” Motto said.

“One of our members has over 4000 employees and reports that over eight per cent of its workforce is currently employed under the visa subclass 457.

“These reforms could equal a loss in salary of up to $12,000 for an engineer.

“With no time to prepare for and budget around these changes, it is simply not viable for many of the professionals who are suffering this kind of loss in income to remain in Australia with their families.

“The sheer impact of these reforms is enormous and the haste with which this decision has been made clearly shows a lack of due recognition by government.”

Consult Australia argued for the reforms to be phased in over two years to allow companies and individuals to form long-term plans to cope with the significant changes.

“The reforms will create vacancies that are hard to fill, thus harming companies’ abilities to deliver projects on time,” Motto said.

“The cost to employers from ‘filling the income gap’ will drive up employment costs and widespread wage inflation will occur because the level of wages sufficient to attract skilled migrants will increase markedly.

“A major challenge to our firm’s success and that of the projects they deliver is the chronic scarcity of the engineers and related professionals needed to get the job done.

“These reforms will put much stress on an already stretched industry.”

But the federal government denied there was an issue with the reform and said the bill would help tax laws better target the tax concession for allowances.

"Our reforms to the tax concession for LAFHA and benefits will ensure that this tax break can't be misused or exploited," Assistant Treasurer David Bradbury said.

"The tax concession will continue to support people who are bearing additional costs because they have to maintain a home in Australia that they are living away from for work purposes for up to 12 months."

The LAFHA reforms will take effect from October 1, 2012.