The recent Court decision in Bechtel Australia Pty Ltd v FC of T 2023 (the Bechtel case) ruled on whether fly-in-fly-out (FIFO) employees’ travel is deductible, creating a shift in the treatment of travel expenses for workers in the mining, gas, transport and other industries. This ruling contrasts with John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC82 (the John Holland case), causing notable effects.
In particular, the decision will affect whether employers can utilise the ‘otherwise deductible rule’ such that no Fringe Benefits Tax (FBT) applies to the cost of the travel. This rule applies where, had the worker incurred the relevant expenditure themselves, the expenditure would have been deductible to the worker.
The facts of the two cases were very similar: employees worked under a FIFO roster, with transport to the worksite from a major airport being provided (booked and paid) by the employer. In both cases, the work sites were not ‘remote’ for FBT purposes, so the FBT exemption that would otherwise apply was not available.
The general position for travel costs is that:
- When an employee is travelling between work locations, the transport expenses incurred by the employee are usually deductible and the employee is seen to be ‘travelling on while performing their duties’; and
- Travel between an employee’s home and regular place of work are non-deductible.
The critical issue in both cases was therefore whether the employees were travelling in the course of performing their duties while on their way to the work site, or whether the travel was part of their home to work travel (i.e. a pre-requisite to gaining or producing assessable income).
The Full Federal Court ruled John Holland was entitled to utilise the otherwise deductible rule because the employees were required to travel from the Perth Airport to Geraldton as part of their employment. In particular, the employees were required to report for duty at the Perth airport, were subject to John Holland’s directions and policies from the time they rostered-on at the airport and were paid for the time they were travelling. They were therefore considered travelling in the course of their employment.
In comparison, the Federal Court held that the travel costs for Bechtel’s FIFO workers were incurred before they commenced work, not during the course of income producing activities.
Even though a travel policy and code of conduct applied to Bechtel FIFO employees while in transit, making their facts and circumstances similar to employees in the John Holland case, the Federal Court concluded that the rules and policies that applied to the FIFO workers differed in relation to the location of their rostered start time, and were seen to be not strong enough to demonstrate control and direction of employees during their travel. Further, the employees were held not to be paid for their travel time and were treated as being rostered on for duty when they reached the work site. The project allowance paid to employees was seen not as for the travel time, but instead, in recognition of the inconvenience of working at Bechtel’s project site on Curtis Island.
This case highlights the subtle differences that can have a significant impact on whether travel is in the course of income-producing activities, which happened in the John Holland case, or is prior to commencing such activities as in the Bechtel case.
The Bechtel case has been appealed to the Full Federal Court, so stay tuned for further updates.
Employers with FIFO employees working in ‘non-remote’ areas should review their employees’ FIFO travel arrangements, how they are paid, and associated internal policies. Are the policies strong enough to demonstrate control and direction of employees during their travel? If annual salaries are paid, is there sufficient evidence of employees ‘clocking on’ at the airport?
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