Fringe benefits tax is not payable with respect to benefits provided to an employee where those benefits would have been deductible to the employee if the employee had directly incurred those expenses.

The Full Court of the Federal Court recently had to consider whether the “otherwise deductible” rule applied to the cost of air travel by employees from Perth airport to the remote project locations of the employer.

The general rule is that fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are  not deductible expenses allowable against the assessable income earned by the employment or business. The Commissioner argued that this rule applied to the cost of air travel of the employees between Perth airport and the remote location and therefore the “otherwise deductible” rule did not apply to exempt the cost from FBT.

However the Full Court held that this was not the case here. In this case, it was held that from the time that the employees checked in at Perth Airport they were travelling in the course of their employment, subject to the directions of the employer and being paid for it and that this situation continued until they disembarked the plane at Perth Airport at the end of their rostered-on work time. Therefore from the time they checked in at Perth Airport they were not travelling to work but were travelling on work.

If the employees had paid for the air fares in these circumstances the cost of the air fares would therefore have been deductible to them.

Therefore the “otherwise deductible” rule applied and the employer was not liable for FBT on the cost of the travel by the employees.

Case: John Holland Group Pty Ltd v Federal Commissioner of Taxation [2015] FCAFC 82