On 10 December 2014, the Federal Court handed down its judgement subjecting John Holland to Fringe Benefits Tax (FBT) on its fly-in fly-out costs relating to its Midwest project.
A single judge of the Federal Court held that the employees’ costs of travelling from Perth airport to Geraldton would have been non-deductible to the employee as home to work travel. As a result, the transport costs were subject to FBT. This was despite the fact that the employee was officially rostered on and being paid from the “point of hire” at Perth Airport.
John Holland had been trying to rely on the “otherwise deductible” rules to claim that the taxable value of the benefit should be reduced to zero on the basis that if the employee had paid for the transport themselves they would have been entitled to a tax deduction. Justice Jagot found many of John Holland’s arguments persuasive. However, she found herself bound by previous authorities which had held that home to work travel was not deductible.
There is a specific exemption from FBT for certain fly-in fly out arrangements. However, in John Holland’s situation that exemption did not apply as the specific project was adjacent to an “eligible urban area” in Geraldton.
Impact for Employers
Following this decision, employers will no longer be able to rely on the “otherwise deductible” rule and may be subject to FBT on their fly-in fly-out costs unless they are able to satisfy all of the technical requirements of the specific exemption. In particular employers should carefully consider whether all of their projects and fly-in fly out arrangements will qualify for the exemption. Issues to be concerned about include:
- Where the project is near an eligible urban area (e.g. less than 100km from Perth or Darwin, or less than 40km from Geraldton, Bunbury, Rockingham or Albany)
- Where employees don’t stay in employer provided housing,
- Where employees don’t work regular shifts, or
- Where employees don’t get flown back to their usual place of residence every time.
The ATO has clearly indicated that they are willing to pursue arrangements which do not fall within the strict requirements of the FBT exemption, and this should be of concern to all employers engaged in fly-in fly-out arrangements.