• Tax alert: Recent case highlights FBT impact on employee travel

Have you sold, leased or purchased a car this Financial Year

The recent Federal Court decision in John Holland Group Pty Ltd & Anor v FCT [2014] FCA 1332 (the John Holland case) has cast doubt on whether travel provided to fly-in-fly-out (FIFO) employees falls within the otherwise deductible Fringe Benefits Tax (FBT) rule and is consequently not subject to FBT.

The case considered whether employees of the John Holland Group would have been entitled to an income tax deduction for their FIFO flights between their home city and work site.

Facts of the John Holland case
The employees were employed on a FIFO, rostered basis to provide rail construction and maintenance services at a project in the mid-west region of Western Australia (Midwest Project).

The employees typically worked a two or four weeks on: one week off roster and were provided with:

  • return flights between Perth and Geraldton (not a remote area for FBT purposes) 
  • apartment style accommodation in Geraldton during their rostered time on 
  • transportation between Geraldton and the Midwest Project site throughout their rostered on period

The court held that the flights represented travel by the employees between their chosen permanent place of residence (in or around Perth) and their work place at the Midwest Project site and, consequently, that the employees would not have been entitled to an income tax deduction for the cost of the flights.

As a result, the John Holland Group was liable for FBT in respect of the provision of the flights to its employees.

Who does this decision impact?
This decision may have wide application to employers who provide travel to their employees on FIFO or other arrangements. 

The Australian Taxation Office (ATO) has recently expressed concern over whether taxpayers understand the distinction between Living Away From Home (LAFH) and travelling on business and the different income tax and FBT implications of each of these scenarios. In our view, there is potentially a third category to throw into this mix.

We expect the ATO to seek further clarification from the courts on whether their views in this area (which are based on long-established common law principles) are still relevant.

What should you be doing about this?
Given the recent focus on this area both in the courts and within the ATO, we expect increased ATO scrutiny and enforcement activity in respect of travel provided to employees.

If you provide travel to employees, you should be taking steps to ensure you understand these recent developments and how they may impact on your business.