A recent Federal Court decision has once again shone the light on the often complex area of employee travel, relating to fly-in fly-out arrangements, and the interaction with the ‘otherwise deductible’ rule.
Previously, in the John Holland case, the High Court confirmed the Full Federal Court decision that the taxpayer was entitled to reduce the taxable value of residual fringe benefits, being the provision of travel to employees from Perth Airport to Geraldton, under the otherwise deductible rule in section 52 of the FBTA Act.
The Court confirmed that, had the taxpayer’s employees incurred the expenditure on the flights, the expenditure would have been deductible to them under the income tax general deduction provision because the employees were required to travel as part of their employment. This is because the employees were subject to the taxpayer’s directions and policies from the time they rostered-on at Perth Airport, and were therefore travelling in the course of their employment.
More recently, the Federal Court in Bechtel Australia Pty Ltd v FC of T [2023] FCA 676 (‘Bechtel’) reached a different conclusion. In this case, Bechtel’s employees were rostered on and off at the Curtis Island LNG plant, off Gladstone, Queensland. This meant that it provided its FIFO workers flights from major airports to Gladstone airport, and then a series of bus and ferry rides to reach the temporary accommodation on Curtis Island, and then in reverse when workers left. Bechtel argued that the “otherwise deductible rule” applied to reduce the taxable value of the fringe benefits to nil.
The primary judge concluded that the taxable value of the expenses on travel before and after the employees began and finished duties should not be reduced to nil for FBT purposes. The primary judge held that the expenditure was a prerequisite to the earning of the employee’s income. His Honour distinguished it from the John Holland case where the workers were rostered on and off when they arrived at the major airport closest to their usual place of residence (i.e. Perth airport). Thus, the travel from that airport to the relevant work site was in the course of their income producing activities – hence, the otherwise deductible rule applied to reduce the taxable fringe benefit to nil.
In both cases the specific remote area exemption for fly-in fly-out travel arrangements was not available presumably due to the proximity of the work locations to Gladstone, an eligible urban area.
We note the Bechtel decision has been appealed by the taxpayer, and so we will update our members accordingly when the appeal decision is handed down.
In the interim, both case decisions provide an opportunity for employers to review employee fly-in fly-out or rotational work arrangements, given there seems to be a clear distinction as to when an employee is “on work” and therefore able to claim travel in the course of their employment duties.
ATO rulings TR 2021/1 and TR 2021/4 also provide helpful commentary dealing with employee travel related costs including many helpful examples dealing with the question of where an employee is travelling ‘on work’ or ‘to work’ (with the latter scenario like to create FBT exposures).
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