In Bechtel Australia Pty Ltd v FC of T 2024 ATC 20-898; [2024] FCAFC 33, the Full Federal Court has held that Bechtel Australia Pty Ltd (Bechtel), as an employer, had a fringe benefits tax (FBT) liability in respect of travel undertaken by fly-in-fly-out workers to and from their work site at Curtis Island.
This decision contrasts with the finding in John Holland Group Pty Ltd & Anor v FC of T 2015 ATC 20-510; [2015] FCAFC 82, where the Full Federal Court had previously held that no FBT liability arose for travel undertaken by fly-in-fly-out workers.
The difference between the two decisions lies in the contractual arrangements. In John Holland, the employee’s employment and employment duties were contractually stipulated to commence at the airport from which they travelled. In Bechtel, the contract specified that those duties commenced at Curtis Island.
Although it is a highly uncommercial distinction and outcome, it does highlight that our courts have to apply the law as it stands, which sometimes compels odd results. It also emphasises the importance of seeking specialist legal advice in contract drafting and in defining when employment duties commence.
The judgment in Betchel serves as a reminder for all employers engaging employees who travel for work purposes to review their arrangements accordingly.
Bechtel organised and paid for “field non-manual fly-in-fly-out” employees’ flights, bus transport and ferry transfers to take these employees:
Australian employees were rostered on for shifts, with their contractual arrangements stipulating that the shifts commenced at Curtis Island for a number of weeks (generally four) and that the employees were rostered off for periods in-between (usually one week). Employees were paid a salary rather than an hourly rate, covering all of their employment obligations.
International employees were rostered on for longer shifts, entitled to assignment leave or home leave every three months and were paid for travel days.
For both Australian and international employees, travelling from Curtis Island to their point of origin usually occurs on the last day of a shift. During this day, employees would perform their duties at the project site for part of the day and are given time to pack their belongings at their temporary accommodation, check-out and commence return travel. However, they were paid for a full day.
The issue considered was whether the “taxable value” of residual fringe benefits in the form of travel arranged and paid for by Bechtel for its employees was reduced by reason of the otherwise deductible rule in section 52(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The answer was no.
Section 52(1) of the FBTAA is described as the “otherwise deductible rule”. It broadly provides that a residual fringe benefit can be reduced to the extent that the expenditure would have been deductible to an employee if they had incurred that expenditure themselves, rather than the employer.
It has long been established that the expenses of travelling from home to work or business and back again are not deductible.
At the core of the judgment and analysis in Bechtel was whether the expenditure fell into that category or whether it was incurred in the course of gaining or producing assessable income. Principles relevant to answering this question included recognising that expenditure is not incurred in gaining or producing assessable income by pointing to:
Rather, what was determinative was identifying when the fly-in-fly-out employee began or ended their employment duties. Under the contract the employees were engaged in, duties commenced and ceased on Curtis Island.
In John Holland, the Full Federal Court held that the otherwise deductible rule did apply to reduce the fringe benefit to nil. The main difference was that John Holland employees’ employment duties contractually commenced at Perth Airport. Therefore, the employees in that case came under their employer’s direction and control at the airport.
Bechtel may seek special leave to appeal the decision to the High Court. To be successful in being granted leave they would need to show that the appeal would involve a question of law that is of public importance. That may be difficult as the decision appears to be confined to its facts and reaches a different conclusion to John Holland based on facts and not a change in legal approach.
If you have any questions about how this decision affects your business, please get in touch with a member of our taxation team below.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
