As it was released just three days out from the annual FBT lodgement deadline, you’d be forgiven for potentially missing – or at least putting on the backburner – the judgement in Bechtel Australia Pty Ltd v Commissioner of Taxation [2023] FCA 676 (the Bechtel case).
Nevertheless, with FBT23 in our rear-view mirror, those with mobile workforces need to block out some time, grab a tea or coffee and ensure to have a thorough read through Justice Logan’s decision (as a special treat, you might even like to print the case, in hard copy and have a highlighter to hand).
If that doesn’t sound appealing to you, we’ve outlined some key highlights below.
Scene setting: Bechtel Australia Pty Ltd v Commissioner of Taxation
The Bechtel case concerned some $13 million-worth of transport costs paid for by Bechtel for its fly-in, fly-out (FIFO) workforce to travel to Curtis Island off the coast of Gladstone to undertake a large LNG construction project and whether those costs should be subject to FBT.
Due to its proximity to Gladstone, Curtis Island is not considered a “remote area” as defined under the FBT legislation. Consequently, subsection 47(7) FBTAA 1986, which otherwise might have exempted such transport costs for rostered workers from FBT, cannot apply.
The only other viable alternative to reduce FBT on the transport costs was to consider the application of the ‘otherwise deductible’ rule.
This required Bechtel to demonstrate that had its employees incurred such transport costs themselves, they would have been able to claim a deduction in their own individual tax returns.
The case had a very similar fact pattern to John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 (the John Holland case) where the taxpayer successfully argued that the ‘otherwise deductible’ rule could apply.
Spoiler alert, unfortunately for Bechtel, Justice Logan found that the facts were not similar enough to the John Holland case and Bechtel was unsuccessful in objecting against the FBT liabilities incurred for the transport costs.
Without painstakingly walking through the full rollercoaster ride of FBT on transport costs, the main points are as follows:
- as a starting point, there are generations of judicial precedents outlining that home to work travel is private in nature and therefore not deductible;
- in the John Holland case, the taxpayer successfully demonstrated that the FIFO travel undertaken by its workforce was not home to work travel but work to work travel, with the work commencing at the ‘muster point’ at the airport;
- given the significant developments in workforce operations and the judicial precedent in John Holland, the Australian Taxation Office (ATO) subsequently worked to release a suite of guidance over the last few years, including:
- TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses?
- Taxation Ruling 2021/4: Income tax and fringe benefits tax: employees: accommodation and food and drink expenses; travel allowances; and living-away-from-home allowances; and
- Practical Compliance Guideline 2021/3: Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location – ATO compliance approach.
What can we learn from the Bechtel judgement?
There is little to no appetite within the judiciary to move away from the core principle that home to work travel is private in nature and not deductible.
The form (plane, train, ferry) or the difficulty of the travel (international, remote, domestic) do not impact this conclusion.
The fact that the FIFO workers were not formally rostered on and not specifically paid for their travel time from the airport to the worksite was determinative.
The judge did not find it persuasive that there were other features of ‘direction and control’ such as being subject to the Bechtel policies during travel or that the employee had no choice regarding the travel timing or planning (this was all undertaken by Bechtel).
There was a very heavy emphasis placed on the contractual documentation in evidencing whether the employees were paid for their travel time.
Specifically, the language describing the ‘project allowance’ was found to be “not felicitous” in demonstrating the connection between the payment and the travel.
FBT risk implications for employers with mobile workforces
Employers with mobile workforces will need to carefully assess their risk if adopting an ‘otherwise deductible’ position for transport where the employee is not specifically rostered on and paid for their travel.
The judgement in the Bechtel case showed a narrower than expected interpretation of the John Holland case.
Arguably, this interpretation is even narrower than that described within the ATO ruling (TR 2021/1) which had considered a somewhat broader interpretation of ‘direction and control’ from John Holland.
The PCG from the ATO will provide something of a safe harbour for ad hoc business travel not exceeding the relevant 21-day/90-day thresholds outlined in that guidance.
Outside of this, employers must be wary of applying the ‘otherwise deductible’ rule.
It is very clear that there is a gap in the FBT definition of a “remote area” as it applies to the concession within subsection 47(7). Some flexibility within the section was introduced in 2009 to correct an anomaly that previously excluded overseas jurisdictions from being “remote areas”.
Subsequently, an established process was implemented whereby the ATO could consider a particular overseas location as remote.
Perhaps that flexibility could also be extended to allow the ATO to consider certain additional domestic locations such as Curtis Island or other locations that technically do not meet the definition of remote in accordance with the 1981 census data which is a feature of the current test.
