The Full Federal Court has upheld a decision that ‘Fly in Fly out’ (FIFO) employees would not have been allowed a deduction for the expenses, of travelling to and from a remote work site, had they incurred those expenses themselves. Accordingly, there was no “otherwise deductible” exemption, that prevented the employer having to pay Fringe Benefits Tax (FBT).
The facts were these.
- Bechtel was involved in the construction of LNG plants and related facilities on Curtis Island, which is near Gladstone.
- Curtis Island is accessible only by sea or air.
- Many of Bechtel’s workers on Curtis Island operated on a fly in fly out (FIFO) basis.
- Bechtel organised and paid for those employees’ travel arrangements, which typically included
- a flight or flights from a point of origin airport to Gladstone airport;
- a ferry to Curtis Island; and then
- a bus to temporary accommodation on the island.
- At the end of a ‘swing shift’, those travel arrangements were reversed.
The travel expenses incurred by Bechtel were residual fringe benefits. However, it contended that the taxable value of the benefits should be reduced to nil, under the “otherwise deductible” rule in s52(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), as the employees would have been allowed a deduction for the travel expenses had they incurred them. ‘Home to work travel expenses’ have a fraught and anomalous treatment – hence the employer’s argument and the Court’s rejection of it.
AT FIRST INSTANCE – In Bechtel Australia Pty Ltd v FCT [2023] FCA 676, Logan J concluded that under the terms and conditions of the FIFO employees’ employment, they were not rostered on for duty until they started work on Curtis Island. Accordingly, the travel expenses would be non-deductible to the employees and therefore the otherwise deductible rule did not apply.
ON APPEAL – the Full Federal Court upheld the first instance decision (in a joint judgment). By the terms of their employment, it was on Curtis Island, and only on Curtis Island, that each employee performed their employment duties. The travel between Curtis Island and the point of origin airport was therefore not undertaken in performance of an employee’s duties as an employee. Rather, the travel was undertaken while an employee commenced or concluded their leave.
(Bechtel Australia Pty Ltd v FCT [2024] FCAFC 33, Full Federal Court, Derrington, Downes and Hespe JJ, 15 March 2024.)
COMMENT – in a general or ordinary sense, it looks like all three transport links, to work (and back home again), were to get to the employees’ to their paid work, and thus, relevantly ‘incurred in gaining or producing assessable income’ (a key ‘positive limb’ in allowing a ‘general deduction’ under s8-1(1)(a) of the Income Tax Assessment Act 1997 (ITAA97)). Home to work travel has, however, been treated as ‘private’ in nature (and not deductible) since gentlemen, in England, lived on their country estates, to avoid living in the less than agreeable cities. Thus, travel to the city, to carry on their profession or business, was necessary, for the ‘private’ purpose, of living outside the cities. Various Courts have acknowledged that this approach, is inconsistent with modern reality, and general Australian tax principles. But Courts have consistently refused to overrule this historic position, saying it has become too deeply entrenched, for too long, to be changed by the Courts. Rather, they say, if this is going to be changed, it needs to be done by Parliament amending the Act. Under this pressure of ‘wonky’ general principle, case law has developed its own set of idiosyncratic exceptions and rules for sidestepping this general principle (that it is ‘private’ expenditure). One of the ways, this was done, was to continue to honour the general principle, that travel to work was private, but allow deductions for travel to work, if you were already on the job (an example might be an agency nurse, travelling to various different places of work, because he/she was doing so, as part of their employment). This Bechtel decision reflects this technical distinction – by analysing the point of time from which the employees employment duties began.]
This is explained somewhat, in the CATCHWORDS – from the first instance decision (of Logan J)
TAXATION – Fringe benefits tax – deductibility of travel expenses for ‘fly in, fly out’ (FIFO) employees – whether travel expenses incurred to and from work, before and after the employee began and finished their duties is travel in the course of employment – whether circumstances satisfy ‘otherwise deductible’ test Fringe Benefit Tax Assessment Act 1986 (Cth), s 52(1) – whether deduction would have been allowable to employees in respect of travel expense Income Tax Assessment Act 1997(Cth), s 8-1 – Lunney v Federal Commissioner of Taxation v Payne [2001] HCA 3; (2001) 202 CLR 93 applied – where travel expenses, if incurred by employee would not be deductible because travel expenses from home to work and back again are deemed living expenses, not business expenses therefore not deductible – travel expenses incurred as a prerequisite to earning income is not the same as travel expenses incurred in the course of gaining or producing income – John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82; (2015) 232 FCR 59 distinguished – that the employee is under a code of conduct during travel to and from work does not convert that travel to travel in the course of employment – Orr v University of Tasmania [1957] HCA 32; (1957) 100 CLR 526 applied – appeal to objection decision dismissed.
[FJM 3.4.24 – LTN 54, 22.3.24]