In March this year, the Full Federal Court handed down its decision in Bechtel Australia Pty Ltd v Commissioner of Taxation [2024] FCAFC 33 ("Bechtel appeal") 1. This case concerned itself with whether certain costs incurred by the employer to transport fly-in-fly-out (FIFO) workers were subject to Fringe Benefits Tax (FBT). Unfortunately for the taxpayer, the court dismissed the appeal – causing over $13 million in FBT previously in dispute to become payable by Bechtel.
In the initial case, Bechtel Australia Pty Ltd ("Bechtel") relied on what it believed to be substantially similar facts as John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 ("John Holland") 2 to argue that is should be allowed to apply the otherwise deductible rule to FIFO transport costs. To the surprise of many in the taxation space, the Federal Court found that the hypothetical expenditure would be not deductible, and thus Bechtel would be liable for fringe benefits tax. A subsequent appeal to the Full Federal Court was also unsuccessful.
The key question from both John Holland & Bechtel was: "Are the employees travelling to work (resulting in private travel subject to FBT), or travelling on work (resulting in deductible travel and therefore no FBT)?"
'Travelling on Work'
Simplifying the John Holland cases, it could be said that there are two key aspects to consider when determining if an employee is travelling 'on work': the first is 'direction and control'; the second is payment for travel time. With the Bechtel decisions, it might at first glance appear that the first aspect's significance has possibly been downgraded (at least in relation to salaried employees) and therefore more focus should turn to payment for travel time. On the other hand, it could also be suggested that the Bechtel decisions illustrate a lack of appreciation of the differences between blue and white collar workers.
'Travelling on Work': When Employment Duties Commence
In the case of Award FIFO employees that are rostered and specifically paid from the point of assembly, there seems broad agreement that they are travelling on work and deductibility of their travel costs is non-controversial. However, an inconsistency between the cases has now possibly opened up for salaried FIFO employees on individual contracts, where it is less clear at what time their employment duties commenced and for what time periods they are paid.
Notwithstanding that John Holland clearly addressed employees of this nature (concluding they too were in fact, travelling on work), the findings in Bechtel come to a different view. In Bechtel, it was found that the employees in that case were not rostered on until they reached the work site, rather than when they arrived at the airport, notwithstanding that a rostering concept is less relevant for salaried employes. As such, they were still travelling to work up until the point they reached their work site destination. What is not clear though, is whether the courts in Bechtel were trying to differentiate the position for all white-collar workers (and possibly misunderstanding how white collar workers are paid in the process) or whether the fact scenario for the salaried workers in Bechtel was weaker than that in John Holland. If the latter though, it might be considered that the courts placed a heavy emphasis on minor fact differences.
It is worth noting that in a much earlier case, the High Court in Commissioner of Taxation v Day [2008] HCA 533 suggested a broader and conceptual consideration of the employment duties of a salaried employee. Although that case was about the deductibility of legal expenses, the principle should arguably have been equally applicable to Bechtel's fact scenario, although Day was not referenced in Bechtel.
The possibly contradictory case law between John Holland and Bechtel has therefore seemingly put critical emphasis on contract wording. Although Bechtel contended that it made 'no sense' to roster a salaried employee and thus drafted the contracts to reflect this, this argument was seemingly rejected by the Full Federal Court.
Actions for Employers
A pressing point therefore for employers with salaried FIFO workers is to consider the inconsistencies of the cases, as we note that both cases are the same level of judicial authority. Whilst John Holland is older, the Bechtel cases are not from a higher court and so should not automatically take precedence. As such, trying to determine which side of the line these workers fall on will create increased uncertainty for employers of FIFO workers.
As always, employers will need to consider their circumstances carefully and consider the likely outcome if they are tested under either John Holland or Bechtel.
The margins here are slim. As quoted from Bechtel, "by a change in place of rostered start time... [Bechtel could] have made such expenses meet the 'otherwise deductible' test in s 52 of the FBTAA." As this emphasis on the contract is also aligned with comments in the John Holland findings, at the very minimum, employers should consider their ability to place special consideration on where and when rosters commence and cease, particularly for salaried employees.
More broadly, the takeaway is that employers should closely consider the facts and circumstances surrounding any 'benefits' they provide to workers. It is imperative that employers with similar arrangements review their own operations. It just cost Bechtel $13 million, how much could it cost you?
Footnotes
1. Bechtel Australia Pty Ltd v Commissioner of Taxation [2023] FCA 676: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2023/2023fca0676
2. John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82: https://jade.io/article/397037
3. Commissioner of Taxation v Day [2008] HCA 53: https://www.hcourt.gov.au/assets/publications/judgment-summaries/2008/hca53-2008-11-12.pdf
Originally published 08 May 2024
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