What you need to know — the challenges
FIFO and DIDO arrangements
The Australian outback has served as the landscape to foster a number of strong industries in Australia, including mining and minerals, agriculture and tourism. One consistent challenge in all industries operating in regional areas is the ability to attract and utilise a talented workforce.
The geographic vastness of Australia has led to many industries adopting common working patterns and arrangements to mobilise employees to worksites. In recognition of the need for businesses to appropriately operate in remote areas across the country, FBT exemptions and concessions are available across a range of benefits that help to attract and retain workforces in these areas.
These exemptions and concessions include the provision or subsidising of permanent housing, support with utility expenses and holiday transportation to capital cities. In addition, for temporary workforces working on a rotational basis to a remote area, commonly referred to as a FIFO or drive-in drive-out (DIDO) arrangement, FBT exemptions and concessions are available for the transport, accommodation and meals provided to employees in these cases.
The challenge arises in instances where the definition of ‘remote’ for tax purposes is not met. Many areas across Australia are geographically distant from metropolitan areas, and the burgeoning population and infrastructure that comes with this, yet do not fall within the definition of ‘remote’ for tax purposes.
The test of what is remote for FBT purposes is largely determined based on population density figures from the 1981 census. Areas that have populations below the prescribed population levels at that point in time are considered remote, and accordingly don’t require much further examination from employers. In these cases, the transport expenses, as well as accommodation and board in majority of cases, will not attract FBT.
However, several locations in Australia fall within an emerging category, being regional but not remote for tax purposes. In John Holland, Geraldton in Western Australia presented the initial challenge, as the remote area FBT exemptions and concessions could not be claimed for travel to this non-remote location. Practically however, a FIFO workforce was required due to the geographic distance from Perth. Based on the facts of John Holland, the Federal Court determined the expenses incurred to transport John Holland employees would have been deductible as the travel by employees when travelling to and from site was largely part of the employees’ duties. Accordingly, the otherwise deductible rule could apply for FBT purposes.
Similarly, Bechtel engaged a FIFO workforce for its operations in Curtis Island, 474 kilometres northwest of Brisbane, presumably driven by the fact that Curtis Island is a national park and is only accessible by sea or air. Like Geraldton, the closest city Gladstone does not have the existing population or infrastructure to support the skilled workforce required and its workforce operated on a FIFO basis.
However, unlike in John Holland, the particular facts in Bechtel led the court to find that employees were traveling to work. On this basis, the transport expenses paid by Bechtel were not otherwise deductible and FBT would apply. We discuss the key differences between the facts in the Bechtel FFC and John Holland decisions in our article here.
With the timing of the Bechtel decision being so recent, any taxpayers operating a FIFO or DIDO workforce, or with any significant operations in regional areas throughout Australia will need to review the facts of travel arrangements closely for the 2024 FBT return.
Other than the cost impost that would arise from FBT if travel in a FIFO was not deductible, the other consideration relevant to both employers and employees where travel expenses are not deductible and are subject to FBT, is the inclusion of transport costs in the reportable fringe benefit amount (RFBAs) for individuals.
International FIFO arrangements
With many Australian operations expanding into new global areas, the increase in FIFO travel to workplaces outside of Australia is becoming more common place.
As with any travel expenses incurred for travel undertaken by employees, employers are required to assess the circumstances of the travel to determine the FBT outcome.
Like FIFO transport to remote areas in Australia, eligible FIFO travel to remote areas internationally can also attract a FBT exemption. With the list of accepted international remote areas being continually updated, taxpayers should be cognisant of where overseas projects are based to ensure the international location satisfies the FBT exemption for transport provided to employees.
If Australian resident employees are operating on a FIFO roster to an international location that is not remote, these arrangements should be assessed in the context of the Bechtel decision to appropriately consider any FBT impact.
Inter-city and interstate commuters
Another common employment arrangement that has presented challenges in recent years is employees travelling on a routine and regular basis between cities. An example would be an employee living in Sydney and commuting to work routinely to Melbourne. While commuting to work in general has been reshaped by the explosion of working from home following the Covid-19 pandemic, flexible working arrangements that cross State boundaries are becoming more common across a range of employers and industries.
While TR 2021/1 provides guidance on the ATO’s interpretation of the classification of travel between a transit point and a work location like the case of an inter-city or interstate commuter, workplaces have in many ways evolved since 2021, and there are a range of non-traditional working patterns which the examples in TR 2021/1 may not provide clarify over.
The recent Bechtel FFC decision did not provide direct assistance for such non-traditional working patterns, however, the decision reaffirms that the test for deductibility remains that the transport costs must be incurred “in the course of” performing employment duties. Notably, some had previously interpreted the John Holland decision to have applied a test of whether transport costs were incurred “as part of employment”; the Bechtel outcome clarifies this was not intended to expand the test beyond the traditional "in the course of" analysis. As such, businesses will need to demonstrate travel expenses are incurred “in the course of” performing employment duties, which in an inter-city or interstate commuter context, may be more challenging, particularly where travellers are salaried employees and not subject to formal rostering.
In instances where travel costs are paid or reimbursed to employees routinely travelling from home locations to intercity and interstate work locations, taxpayers should continue to focus efforts on good data collection processes to ensure FBT positions around the deductibility of travel expenses for employees can be substantiated.
