The Federal Court has dismissed the taxpayers’ appeal and held that costs incurred in flying employees from Perth to Geraldton and back for a rail upgrade construction project were not deductible.
The Commissioner contended that “fly-in fly-out” (FIFO) employees are undertaking another form of journey to and from work, it having long been established that such journeys are not deductible (Lunney v FCT (1958) 100 CLR 478; [1958] HCA 5). According to the Commissioner, it would be wrong for the Court to attempt to resolve the matter “by logic alone”, the course of authority having been set long ago.
The taxpayers argued that Lunney had never been considered to be an exhaustive statement about the deductibility of travel expenses and did not yield an answer to the present matter given the different facts. On the facts, they said the costs of the flights were deductible, consistent with the meaning which had been given to the concept of “incurred in gaining or producing your assessable income” in s 8-1 of the ITAA 1997.
The Federal Court said the important distinguishing features from the Lunney case were that in the present case, the travel was undertaken at the employer’s direction and the employee is paid for the period of travel.
But the character of the outgoing, assuming that the employees had paid for their own flights, remains the same. To the employee, the cost of the flights would be incurred because they had chosen to live away from their place of work, the Court said. Costs of travelling from home to work and back are not deductible. The Court dismissed the taxpayer’s appeal.
(John Holland Group Pty Ltd & Anor v FCT [2014] FCA 1332, Federal Court, Jagot J, 10 December 2014.)
FJM Note on case
This is appears to be a case about whether the employer has to pay FBT on the cost of transporting its workers to and from their place of work under the ‘fly-in fly-out’ arrangements. This is determined under the ‘otherwise deductible’ rule (viz: whether the expense have been deductible to the employee, had it been born by the employee). I think this case may well be appealed, not only because of its importance to the taxpayer and the industry, but also because there are exceptions to the general position set down in the Lunney case. One of these is a doctor on call who can deduct the cost of travelling from work because it was held that he or she was already at work as they were driving to the hospital. The court recognised that the employees were employed on this ‘fly-in fly-out’ basis, and were paid whilst on these flights (to and from their place of work). This might have to be put to a Full Federal Court bench to be reconsidered.]
[LTN 241, 12/12/14]