FBT principles comes back into focus for a number of organisations with mobile employees travelling on Fly-in-Fly-Out (FIFO) arrangements.
Business related travel expenses remain a topic of focus for the ATO. Whilst the John Holland case[1] and recently released Tax Ruling 2021/1 made significant progress in providing guidelines on when the “otherwise deductible” rule can apply for business-related travel expenses, the recent judgement in the Bechtel case[2] demonstrates that the devil is really in the detail.
What happened?
An Australian subsidiary of US engineering giant, Bechtel, was engaged to work on a Liquid and Natural Gas (LNG) project on Curtis Island, near Gladstone in central Queensland.
Whilst Curtis Island was not considered to be a “remote area” for FBT purposes, access to the island was restricted. Transport was only possible via sea or air travel to and from the worksite. This would ordinarily be organised by Bechtel for all its employees required to work on the site on a rotational FIFO roster.
Bechtel’s roster policy was centred on a “swing” shift, meaning employees would not be considered “on-call” and working throughout the total duration of their shift. During this interim period, employees were provided with the advantage of leaving the worksite, and returning to their temporary accommodation to pack and check-out for their return travel home. These actions would all occur prior to the end of their official roster. Additionally, travel to Curtis Island would typically start prior to the roster commencing and return travel back to the port of origin was also mid-shift.
What was the possible tax concession?
Given the location of the LNG project, the total travel expenses incurred by Bechtel for its FIFO employees was estimated to be around A$13 million in 2019.
Since it is widely accepted that travel between home and an individual’s place of employment is private in nature, travel benefits provided would be subject to FBT unless a specific exemption applied.
Because Curtis Island was not considered a “remote area”, as specifically defined under the Fringe Benefits Tax Assessment Act 1986, the transportation costs could not be exempt from FBT under the remote area concessions.
Therefore, the only other possible FBT concession available would be where the travel expenses were considered “otherwise deductible”. This would be based on the expectation that the FIFO employees would have been able to claim a deduction for these expenses on their own personal income tax return, as it would have been considered a deductible cost that they had incurred for work-related travel. Where a fringe benefit meets the “otherwise deductible rule”, it would generally be exempt from FBT.
What was the actual outcome?
Ultimately the court found in favour of the ATO and confirmed that the benefits provided were not “otherwise deductible”. Therefore, FBT applied.
Whilst the case itself did have parallels to the John Holland case Justice Logan formed a view that the facts were not completely analogous.
What became apparent was that there were distinct differences in how Bechtel’s employees worked during their transit period compared to the John Holland employees. As such they were not considered “on shift”. The costs were therefore found to be of a private nature and not “otherwise deductible”.
Outlined below are some key differences as to why the Bechtel employees were not considered “on shift” whilst in transit:
- The employment contracts of each of the relevant FIFO workers detailed that they were not rostered on for full duty until they commenced work on Curtis Island
- In contrast to the John Holland case, the employees were not considered to be “on work” and travelling from two separate places of business at the time that they started their commute from their port of origin
- Additionally, the FIFO employees were able to take advantage of the “swing” shift arrangement, which indicated that they were not at the direction or control of their employers during this period, prior to their return transit[3].
What should we keep in mind?
Given the recent case law and guidance provided by the ATO in Tax Ruling 2021/1, it is clear there is a narrower lens placed on the criteria needed to be met for travel related expenses to qualify as being “otherwise deductible”.
Whilst the John Holland case did push the boundaries on what is accepted as a business-related transport cost, the recent outcome of the Bechtel case demonstrates that there is a fine line between travelling “to work” and “on work”. In particular, there was a focus on the material substance, nature, and influence of the employer on their employees’ work during their commute and rostered period.
Although there does not seem to be any changes on the horizon to the principle of travel between home and a place of business as being private in nature, there could be an opportunity to provide the ATO with some discretion to update what would constitute a “remote area” for the purpose of the separate remote area FBT concessions to apply.
Next steps
The decision in the Bechtel case has been appealed by the taxpayer, so we expect more developments in this area. For now, employers should ensure they have clear policies, guidelines and documentation in place for their FIFO or rotational workforce to avoid any ambiguity regarding whether a benefit is subject to FBT.
[1] John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 [2] Bechtel Australia Pty Ltd v Commissioner of Taxation [2023] FCA 676 [3] TR 2021/1
