Hill J

Federal Court

Judgment date: Judgment handed down 5 July 1993

Hill J

The applicant, the Roads and Traffic Authority of New South Wales (``the Authority''), is a statutory corporation established pursuant to s. 46(1) of the Transport Authority Act 1988. It is the successor to the Commissioner of Main Roads, a corporation sole, and succeeded to the liabilities of the Commissioner.

The present applications to the Court concern assessments for fringe benefits tax in respect of the fringe benefits tax years ending 31 March 1987 and 31 March 1988. By these assessments, the respondent Commissioner of Taxation (``the Commissioner'') increased the taxable value of fringe benefits returned by the Authority in the fringe benefits tax years in question, from $385,886 to $1,745,897 in 1987, and from $472,472 to $2,412,559 in 1988. The amounts now in contention between the parties are shown in the following table:

|                                              | 1987 Year | 1988 Year |
|                                              |  of Tax   |  of Tax   |
|                                              |     $     |     $     |
| Fares and Motor Vehicle Reimbursements       |           |           |
| -- Expense Payment Fringe Benefit under      | 938,209   | 1,298,232 |
| Section 20 of the Act                        |           |           |
| Vacation Travel Reimbursements               |           |           |
| -- Expense Payment Fringe Benefit under      |   5,210   |     7,908 |
| Section 20 of the Act                        |           |           |
| Living-Away-From-Home Fringe Benefits        |           |           |
| -- Living-Away-From-Home Fringe Benefit      | 281,824   |   326,066 |
| under Section 30 of the Act                  |           |           |
| Provision of Camp Accommodation              |           |           |
| -- Residual Fringe Benefit under Section     |  39,252   |    49,467 |
| 45 of the Act                                |           |           |

The descriptions of each item are those of the Commissioner. Those descriptions are the subject of challenge by the Authority.

In addition, additional tax was imposed by the Commissioner in the two fringe benefits tax years of $179,822 and $139,912 respectively. The determination of the substantial liability of the Authority will resolve between the parties the question whether this additional tax was correctly imposed.

The general scheme of the Fringe Benefits Tax Assessment Act 1986 (``the Act'') was described by Gibbs CJ in
State of Queensland v Commonwealth of Australia (the First Fringe Benefits Tax case) 87 ATC 4029 at 4032; (1987) 162 CLR 74 at 83, in the following terms:

``... the fringe benefits tax is a tax imposed on an employer (in this case the State) on the taxable value of the fringe benefits provided by the employer (or by an associate of the employer, or a person acting under an arrangement with the employer or with an associate of the employer) to the employee or to an associate of the employee... `Benefit' is also widely defined in sec. 136(1); it includes `any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility...'. The particular cases of benefit specifically dealt with in Pt III of the Assessment Act illustrate the width of the definition - they expressly include, besides car benefits and housing benefits, cases where debts are waived, loans are made, payments are made for expenses, an allowance is paid to an employee for living away from home, a person employed by an airline operator or travel agent (or the employee's associate) is provided with airline transport, board or property is provided or `non-deductible exempt entertainment expenditure' is incurred, but those instances are not exhaustive: see sec. 6 and Div. 12 of Pt III of the Assessment Act.

ATC 4510

The subject of the tax is the value of the benefits provided by the employer, and not the value of the benefits received by the employee; a benefit to the employee within the meaning of the Assessment Act will have been provided notwithstanding that the benefit was surplus to the needs or wants of that employee, and notwithstanding that the benefit is offset by some inconvenience or disadvantage: see sec. 148(1)(c), (e) of the Assessment Act.''

Fringe benefits tax is imposed by the Fringe Benefits Tax Act 1986 in respect of ``the fringe benefits taxable amount of an employer of a year of tax'': s. 5. It is payable by the ``employer''. It is not in dispute that the Authority is an employer. The fringe benefits taxable amount of an employer is, in the ordinary case, the sum of all the values allocated by the Act to the various ``fringe benefits'' provided by the employer in the current tax year: s. 136(1) of the Act (definition of ``fringe benefits taxable amount''). It is a prerequisite of there being a ``fringe benefit'', that there be a ``benefit'', an expression itself defined in s. 136(1) of the Act in an inclusory definition.

As I said (at 4210) in
Tubemakers of Australia Ltd v FC of T 93 ATC 4207, a case concerned with amounts paid to former employees and intended to be used to pay premiums for hospital and medical benefits:

``A benefit will relevantly be a `fringe benefit' if provided in the year of tax to an employee by the employer in respect of the employment of the employee, unless excluded from the definition of the expression in s. 136(1) by virtue of paragraphs (f) to (p) inclusive of the definition...

Paragraph (f) exempts from the definition of `fringe benefit':

`a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936;'


Salary or wages are defined, for the purposes of the Income Tax Assessment Act 1936, by s. 221A of that Act. For present purposes, s. 221A(1) defined, at the relevant time, salary or wages as meaning:

```salary or wages' means salary, wages, commission, bonuses or allowances paid... to an employee as such,...''

The reason for the exclusion from the definition of ``fringe benefits'' of amounts which are salary and wages within s. 221A of the Income Tax Assessment Act 1936 (``the ITA Act'') is relatively clear. Amounts of ``salary and wages'' paid by an employer to an employee were subject to deduction of tax at source, pursuant to what is commonly referred to as the ``PAYE'' system. No difficulty arose in calculating the amount of the salary or wages which ordinarily would have been paid in cash. The revenue was protected because the employer was obliged to account for the tax to the Commissioner. Fringe benefits, on the other hand, not falling within the definition of ``salary or wages'' were not the subject of PAYE tax and the Commissioner was left to recover any tax payable on such fringe benefits as were included in the assessable income of the employee from the employee. There was often difficulty in determining the value of the fringe benefit. Section 26(e) of the ITA Act, prima facie the relevant section with which to commence when determining the assessability of fringe benefits, referred to ``value to the taxpayer'', ie the employee, and often an employee would claim that the so-called fringe benefit was of no value to him and accordingly not disclose it in his return. By contrast the Act operated to impose the liability for fringe benefits tax upon the employer or other person who granted the fringe benefit and set out detailed rules for determining the value of that benefit, the formula for valuation depending, as already noted, rather upon the cost to the employer of providing that benefit than the value to the employee of receiving it.

At the relevant time, there were eleven different kinds of fringe benefits defined by the Act in Divisions 2 to 12 inclusive of Part III. Of these, the present case is concerned only with three:

  • • Expense Payment Fringe Benefit
  • • Living-Away-From-Home Allowance Fringe Benefit
  • • Residual Fringe Benefit

I shall deal with the statutory provisions relevant to each class of fringe benefit after setting out the facts said to be relevant to that class of benefit.

ATC 4511

Fare Allowances - Expense Payment Benefits?

The Authority paid amounts in respect of travel to its employees in the relevant years of $938,209 and $1,298,232, respectively. Travelling allowances were required to be paid pursuant to the various Awards under which employees worked. Section 25(2)(a) of the General Construction and Maintenance, Civil and Mechanical Engineering, &c, (State) Award (agreed by the parties to be typical of provisions found in all relevant awards) provided as follows:

``... employees of NSW Government Departments and Instrumentalities... shall be paid as follows:

  • (a) Fares...
    • (1) An employee who travels to and from his place of work by a public conveyance shall be paid all fares actually and necessarily incurred in excess of $1.00 per week or 20 cents per day; provided that where the employer provides camping facilities or the equivalent and the employee travels to and from his residence daily, the employer shall not be liable to pay fares in excess of $2.40 per week.
    • (2) All time occupied in travelling in excess of ten minutes each way between the nearest stopping place of any public conveyance and the place of work shall be paid for at the prescribed rate. Walking time shall be at the rate of 1 km in 12 minutes.
    • (3) Where an employee elects to travel by his own conveyance, or does so because the use of available public transport is impracticable, fares shall be calculated and paid for as if travel were made in the ordinary way by public transport. Where any payment is made under this subparagraph the provisions of subparagraph (2) of this paragraph shall not apply.''

Before 8 February 1990, no single standard form was prescribed for use for employees of the Authority claiming a fares allowance. Each works office had its own form, although the forms utilised were similar and often identical. Sample forms in evidence show that the employee was asked to fill in the actual transport used by him, the public transport route appropriate and the fare charged for that public transport. In some cases the employee was required to certify the information to be correct and that either the fare in question was actually and necessarily incurred by the employee, or an entitlement existed to an equivalent fare under the Award. In other cases there was no requirement for certification. Where certification was required it was not always completed. A perusal of forms in evidence indicate that some employees travelled by car, others by private bus and others by public transport. In some cases the actual mode of travel was not filled out. It seems that a substantially large number of employees travelled by car, presumably their own car.

When the form was completed by the employee, it was handed to the timekeeper at the works office at which the employee worked and checked to ensure that the public transport route claimed for was the shortest route and that' the fares claimed accorded with those published by the relevant transport authority. Thereafter a leading hand, ganger or foreman ticked off the daily attendances of the employees and wrote ``Fares'' or ``Fare Allowance'' on their time sheet. At the end of each fortnight the time sheets were certified as correct by the foreman at the job processing site and forwarded to the works office for when the relevant fare allowance was calculated and paid to the employee in accordance with the terms of the award. As a matter of procedure, the Authority did not check whether the employee did in fact use public transport or indeed whether the employee incurred any expenditure at all. New forms were only completed where an employee changed job sites.

The Commissioner claims that these payments fell to be taxed as expense payment benefits defined by s. 20 of the Act in the following terms:

``20 Where a person (in this section referred to as the `provider')-

  • (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the `recipient') to pay an amount to a third person in respect of expenditure incurred by the recipient; or
  • (b) reimburses another person (in this section also referred to as the `recipient'), in whole or in part, in

    ATC 4512

    respect of an amount of expenditure incurred by the recipient,

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.''

It was submitted for the Commissioner that each of the payments made to employees by the Authority ``reimbursed'' the employees in whole or in part in respect of expenditure incurred by the employee.

It should be noted that ``reimburse'' is defined in s. 136(1) to include:

``... any act having the effect or result, direct or indirect, of a reimbursement.''

For the Authority it was submitted that none of the payments in question operated to reimburse the employees in respect of expenditure incurred by them, but that even if a payment did so operate, the amounts in question would fall within the definition of ``salary or wages'' within s. 221A of the ITA Act.

The word ``reimburse'' is defined in the Macquarie Dictionary as meaning ``to make repayment to for expense or loss incurred; to pay back; refund; repay''. Thus an employee who travelled by government bus and who had the whole, or perhaps substantially the whole, of the amount he had paid refunded to him would, in ordinary parlance, be said to have been reimbursed that amount. On the other hand, an employee who travelled in his own car but who was paid an amount dependent upon the cost of public transport less a small sum, would not, in ordinary parlance, be said to have been reimbursed anything.

The ordinary meaning of the word ``reimburse'', however, is expanded by the definition in s. 136(1) so that if the result of a payment is indirectly a reimbursement, the payment in question will be taken to be a reimbursement and the payment thus fall within s. 20.

Notwithstanding the width of the definition of ``reimburse'' contained in s. 136(1), I doubt if it could properly be said that a payment of an amount of money having no relationship at all to the actual cost (for example, of private car transport) operated so as to have the effect or result, directly or indirectly, of reimbursing the whole or part of the expenditure of operating the vehicle. It seems to me that the concept of reimbursement requires that the payment in question be made by reference to actual cost, that is to say that there would need to be some correspondence between the payment and the expenditure incurred, even if the reimbursement were to be but partial reimbursement.

Under the Award, an employee could, it would seem, elect to travel by bicycle at no, or minimum, cost, but nevertheless be paid what it would have cost had he travelled by public transport less $1 per week or 20 cents per day. A payment to such a person could by no stretch of the imagination be said to involve a reimbursement.

Were it necessary to decide the matter, I would be inclined to the view that an employee who actually used public transport and who was paid in accordance with para. (a)(1) of the Award set out above, would be reimbursed the whole of that amount, but an employee who travelled by some other form of transport or used his own conveyance would not be, in the relevant sense, ``reimbursed'' when he received the payment.

However, in my view it is ultimately unnecessary to determine the issue because the payments in question fall within the definition of ``salary or wages'' within s. 221A of the ITA Act and, accordingly, do not fall within the definition of ``fringe benefit''.

The language of the definition of ``salary or wages'' in s. 221A(1) is deliberately wide. The legislative purpose was to include in the definition, and so that tax could be deducted by the employer and ultimately remitted to the Commissioner as an anticipatory payment of the employee's tax liability, all amounts paid as a reward for services rendered by the employee:
FC of T v J Walter Thompson (Australia) Pty Ltd (1944) 7 ATD 401; (1944) 69 CLR 227 and at ATD 405-406; CLR 233-234. The description of the payment, for example as a fee, will not be determinative. Nor, as the J Walter Thompson case reminds us, will it be determinative that, for the purposes of legislation such as the Truck Act (1896) (UK), the word ``wages'' was limited to payments made to manual workers as the context of that legislation is substantially different to the present. Thus Latham CJ said (at ATD 406; CLR 234), speaking of the comparable definition in the Pay-roll Tax Assessment Act 1941:

ATC 4513

``In my opinion... the word `wages' should be held to include any remuneration paid or payable to an employee as a reward for his services as an employee.''

That wide approach was later to be adopted by the majority of the Full High Court in
Murdoch & Ors v Commr of Pay-roll Tax (Vic) (1980) 143 CLR 629, where it was held that distributions by the trustees of a will of a percentage of the profits among employees, in such proportions as the trustees thought fit, were wages paid by the trustee, being the employer, to its employees as such and hence assessable to payroll tax. This was, as the joint judgment of Mason, Murphy and Wilson JJ said (at 645), because the payments in question were ``rightly described as remuneration paid to employees because they were employees''.

The argument in Murdoch was that the payments in question were merely personal gifts and not paid to the employees in their capacity as employees. That argument was rejected, that rejection not depending upon the criteria in fact applied by the trustees in making the distribution to the employees. As a matter of fact the criteria applied by the trustees in making payments had regard to the value of the services rendered to the business by the employees. Of that criteria, Mason, Murphy and Wilson JJ in the majority said:

``... although we do not regard those criteria as irrelevant, they certainly support the conclusion. But even if other criteria, as suggested in argument, were adopted, in our opinion it does not follow necessarily that the payments would not attract liability to payroll tax.''

Reference should also be made to two further cases concerned with car allowances which cast light upon the proper interpretation of the definition. In the first,
Mutual Acceptance Company Ltd v FC of T (1944) 7 ATD 506; (1944) 69 CLR 389, travellers employed by the appellant to collect instalments under hire purchase agreements who used their own cars were paid a fixed amount agreed between the company and each traveller as representing an arbitrary and rough and ready assessment of two-thirds of the expenditure estimated as likely to be incurred by the traveller in using his car. The actual expenditure incurred was always greater. The question arose as to whether the payments were allowances paid to the employees as such and within the definition, therefore, of ``wages''. It was argued that the allowances in question were a partial reimbursement of actual expenditure and so not ``wages''. That argument was rejected. So too was an argument that the word ``allowances'' was limited to allowances which fell within the ordinary concept of wages by virtue of being remuneration for services.

Discussing the meaning of the word ``allowances'', Latham CJ said that when it was used in connection with the relationship between the employer and employee it meant (at ATD 510; CLR 396-397):

``... a grant of something additional to ordinary wages for the purpose of meeting some particular requirement connected with the service rendered by the employee or as compensation for unusual conditions of that service.''

His Honour illustrated the meaning of the word ``allowances'' by reference to examples of expense allowances, travelling allowances and entertainment allowances, each being payments additional to ordinary wages and made for the purpose of meeting certain requirements of a service.

Dixon J, who dissented, expressed the view that ``wages and salary'' referred to ``ordinary forms of remuneration for work done''. His Honour added, in respect of allowances:

``The next word `allowances' seems to me naturally to follow as an attempt to make sure that any other kind of gain or reward allowed or conceded by the employer to the employee for his work is brought within the definition. In language borrowed from Lord Esher, it is intended to cover any payment beyond the agreed salary of the employee for services or additional services rendered by him...''

The Mutual Acceptance case was followed in the case of
WA Flick & Co Pty Ltd v FC of T (1959) 12 ATD 98; (1959) 103 CLR 334. The facts of the case differed from the Mutual Acceptance case only in that in Flick employees were required to use their car, whereas in Mutual Acceptance the use of the car was optional. The High Court was unanimously of the view that the differences were immaterial. The majority said (at ATD 100; CLR 339-340):

``... the effect of Mutual Acceptance Co. Ltd. v. Federal Commissioner of Taxation (supra) is that `allowances paid... to any

ATC 4514

employee as such' include a motor car allowance notwithstanding that it does not fully reimburse the employee for his expenditure in running his motor vehicle in his employer's service. That case requires that the allowance be looked at from the point of view of what the employer pays rather than what the employee makes and poses as the critical question, whether the payment is one which the employer makes to the employee because of something done in the service of the employer. As Williams, J. said... the Act is concerned `with the actual remuneration which he is entitled to receive in respect of his employment, quite irrespective of the expenses to which he has been put to earn that remuneration'.''

The present is, I think, an easier case than that involved in Flick. Here the payments in question have little relation, except in the case of an employee who actually uses public transport, to the actual cost incurred by the employee. The amount is payable whether or not the employee travels by public transport, provided he travels by some form of conveyance. The payment is made to persons who are employees and made to them pursuant to their Award. No question arises of the payment being a mere gift. There is no question of employees being required to account for the moneys they receive.

It was argued for the Commissioner that the only amounts which fell within the definition of wages in s. 221A were amounts which actually remunerated the employee for actual services performed. It was said that, as travelling to and from work preceded the employee's service, then a fortiori the payments in question could not be a reward for the employee's service but were antecedent to that service. With respect, this argument misconceives the test propounded in Flick and is clearly contrary to the views expressed by the High Court both in J Walter Thompson and in Murdoch.

It may be true that travel to and from work is not an allowable deduction under s. 51(1) of the ITA Act because the expenditure on such travel is not expenditure in gaining assessable income but expenditure in getting to work in order to gain that income:
Lunney v FC of T (1958) 11 ATD 404; (1957-1958) 100 CLR 478. But it does not follow from that, that an amount paid to compensate an employee for the cost of that travel is not within the definition of ``wages''. Indeed, one might ask rhetorically, what else would the payment to the employees be other than as additional compensation to the employees for their services. There is no need that the remuneration relate to specific services rendered, as long as the payment in question is remuneration for services generally.

An alternative argument posed for the Commissioner was that the expressions ``allowances'' and ``reimbursements'' were mutually exclusive so that provided the amount in question was a reimbursement it could not fall within s. 221A as an ``allowance''. With respect, this argument does not follow. It may well be that the ordinary English meaning of the words ``allowances'' and ``reimbursements'' are mutually exclusive, in that an allowance is an amount generally granted in anticipation of expenditure being incurred, whereas reimbursement is an amount repaying that expenditure or a part of it. However, the extended definition of ``reimbursement'' clearly leads to the conclusion that the two words are not necessarily mutually exclusive. In any event, even if they be mutually exclusive, it suffices the taxpayer to show that the amount in question falls within the definition of ``salary or wages'' under s. 221A. In deciding whether the amount falls within this definition it is not necessary to conclude that the amount in question is an allowance. It suffices to say that the amount in question may form part of the salary or wages of the employee paid to that employee in his capacity as an employee, within s. 221A of the ITA Act.

Vacation travelling expenses - expense payment fringe benefit?

In the document entitled Conditions of Employment for Administrative, Clerical and Professional Officers of the Department of Main Roads, agreed by the parties to be typical of conditions of employment for all employees to whom this benefit was paid, there appears the following:

``12 Fares Subsidy - Climatic Allowance Area

(1) An officer whose headquarters are situated in an area which [sic] climatic allowance is paid shall be entitled to a subsidy toward the cost of fares incurred when proceeding on annual recreation leave from that area.

ATC 4515

The maximum amount payable to such an officer in respect of a period of annual recreation leave for a return journey from his headquarters to Sydney, or elsewhere not exceeding the cost of a return journey to Sydney, shall be:

  • (a) the actual cost, less $30, of fares incurred in travel by rail (including the cost of sleeping berths where these are actually used) and/or service car; or
  • (b)(i)$200 in respect of a married officer, his spouse and dependent children; or
  • (ii)$100 in respect of an officer without dependents whichever is the lesser amount.

Payment will not be made in respect of Taxi fares or meals.''

It will be noted that unless rail transport is in fact used by an employee, the amount payable to the employee is whichever is the lesser of the amounts stipulated in (b) or the cost of a return journey by rail to Sydney. There is no requirement for any amount to be actually expended.

It is difficult, except in a case where what is paid represents the actual cost less $30 of a fare incurred, to see how there is any reimbursement in this case. Even if there were, I am of the view that no different issue arises in respect of this allowance than arose in respect of the fare and motor vehicle reimbursement payment already discussed. In my view, and for the reasons set out earlier, the payments in question fall within the definition of ``salary or wages'' in s. 221A of the ITA Act and accordingly are not fringe benefits liable to tax under the Act.

Camping allowance - living-away-from-home allowance benefit?

A living-away-from-home allowance benefit is a benefit of the kind referred to in s. 30 of the Act: s. 136(1) (definition). Sub-section (1) of s. 30 provides as follows:


  • (a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
  • (b) it would be concluded that the whole of a part of the allowance is in the nature of compensation to the employee for-
    • (i) additional expenses (not being deductible expenses) incurred by the employee during a period; or
    • (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period,
  • by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment,
    • the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.''

The expression ``deductible expenses'' is defined in s. 136(1), in relation to an allowance paid to an employee, as meaning:

``... expenses incurred by the employee in respect of which a deduction is or, but for section 51AE and Subdivisions F and G of Division 3 of Part III of the Income Tax Assessment Act 1936, would be, allowable to the employee under section 51 of that Act.''

Section 30(1)(b) was the subject of detailed consideration by Lee J in
Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808. That case established the following propositions:

(1) The circumstances of payment of the allowance must be such that a reasonable person would conclude, applying an objective view thereto, that the allowance bore the character described in s. 30(1)(b) (at 4816).

(2) The required character of the allowance was that it must be a payment in the nature of compensation for additional expenses incurred by the employee either without any other component (s. 30(1)(b)(i)) or with another component being additional disadvantages to which the employee is subject. A payment which is compensation only for additional disadvantages will fall, as was the case in Atwood Oceanics, outside s. 30.

(3) The allowance need not be paid as compensation, it is sufficient that in the eyes of an objective observer the allowance

ATC 4516

would be seen to be in the nature of compensation to the employee (at 4816). There must be demonstrated some causal connection between the likelihood of the additional expenses and disadvantages of which s. 30(1)(b)(ii) speaks and the requirement to live away from home for a period.

(4) An example of the additional expenses to which the section speaks would be extra costs for food and accommodation which would not be incurred if the employee were not required to live away from home (at 4816).

(5) To the extent that the allowance relates to additional expenses, there must be a clear connection with likely additional expenditure (at 4817).

(6) What must be determined is the underlying purpose of the allowance (at 4817). In determining this purpose regard can be had to any award, pursuant to which the allowance is paid and the history of that award.

The evidence in the present case shows that the allowances were paid to employees who were labourers, gangers, field-hands, plant operators or foremen.

Employees were usually hired at a works office. There are approximately 38 works offices in New South Wales located in towns or cities. At the time workers were hired, they were told that they would be required to camp if the work site was located at a place where reasonable transport facilities were not available to enable them to proceed to and from their homes to the work site each day. Where workers worked at sites accessible to the town, the applicant or its predecessor provided a truck to transport workers from the works office to the work site.

The practice in the relevant years was that the works engineer made a judgment as to whether a camp site would be established at or near a particular work site. That judgment took into account the distance of the work site from the works depot and the reasonable availability of transport. Relevant awards governing the conditions of work for employees required the applicant to provide camping facilities where the work site was more than 70 kilometres from an employee's place of residence. Where a camp site was established, workers allocated to that site stayed at the camp during the week, except in the case of illness or leave. Workers working from these camp sites worked on road or bridge construction or major rehabilitation works, generally in teams. The duration of work at a particular site varied from a few days to several months with a maximum of 12 months. Employees at camp sites were accommodated either in huts or in caravans. Generally these huts and caravans were situated on the side of the road, although there were occasions where accommodation was provided in caravan parks.

Construction and maintenance workers were paid an allowance at the rates of $8.30 per day from 1 July 1986 to 27 October 1986 and $8.50 per day from 28 October 1986 to 31 March 1988. Staff employees receiving the same allowance were paid at the rate of $60.20 per week. In the two fringe benefits tax years in question payments of the allowance were made, so I was told from the bar table, to some 2,000 employees. The Commissioner submitted that it was necessary for the Court to know the facts of each of the 2,000 employees to reach a decision and that in default of the taxpayer calling evidence from each of these employees, the appeal should fail. Given the degree of cooperation which to that point the parties had shown in coming to a sensible agreement as to the relevant facts and issues, this submission seemed somewhat extraordinary. To suggest that the Court should effectively have 2,000 hearings determining the deductibility of hypothetical expenditure in respect of each of the 2,000 employees is to suggest that the Court's resources should be deflected from more serious and pressing matters.

To this end I suggested that the parties should endeavour to select a small number of cases in some random fashion so that the facts of these cases could be investigated and form a framework for the ultimate resolution of the issues. Ultimately evidence was adduced covering 21 employees. Of these the facts relevant to two were given at the hearing. Later, by the use of a computer, a random sample of one hundred was selected, which was ultimately reduced to 19 employees. As I understand it, it is agreed that these 19 employees may be taken as representative of all employees who were in receipt of camping allowances. I will deal first with the initial two employees, a Mr Murray and a Mr Pettet.

ATC 4517

Mr Murray's ordinary place of residence was a house at Gilgandra. In the period from 3 October 1986 to 25 December 1987, Mr Murray was in camp between 14 November 1986 and 12 December 1986 and between 30 April 1987 and 4 June 1987. He was also in camp between 16 February 1988 and 8 March 1988. At least on two of the occasions he was in camp, he was quartered at a departmental camp in Parkes. In the period 1 April 1987 to 31 March 1988, Mr Pettet was quartered at a caravan park in Gilgandra from 23 March 1987 to 2 July 1987 (76 days) and from 5 August 1987 to 7 August 1987 (3 days). He was then, apparently, moved to a site in Molong where he was quartered at Molong Caravan Park, being there for the period 9 August 1987 to 19 November 1987 (88 days) and 13 December 1987 to 21 December 1987 (8 days).

The evidence in respect of the 19 representative cases is summarised in the table below.

|             |   OF   | STATUS  | PERIOD| CAMPS | OF SITE  | LENGTH|
|             | OCCAS- |         | EXAM- |       | FROM HOME|OF STAY|
|             | IONS IN|         |INATION|       | (KMS)    | (DAYS)|
|             |ONE CAMP|         | (DAYS)|       |          |       |
| WENT        |    1   |    S    |  486  |   1   |    126   |    12 |
| SCULLIN     |    2   |    S    |  484  |   1   |    167   |    63 |
| McBEATH     |    6   |    S    |  452  |   1   |    120   |   181 |
| BARWICK     |    8   |    S    |  435  |   1   |    195   |   217 |
| NEAYLON     |    1   |    S    |  475  |   1   |    134   |    43 |
| HOWARD      |    6   |    M    |  442  |   1   |    120   |   249 |
| BEER        |    3   |    M    |  425  |   1   |    120   |   230 |
| McCARTNEY   |    5   |    M    |  444  |   1   |    120   |    52 |
| EGAN        |    4   |    M    |  507  |   1   |    110   |    65 |
| SAINES      |    2   |    M    |  222  |   1   |    N.K.  |    89 |
| FARRAWEL    |    9   |    M    |  428  |   1   |     96   |   247 |
| McMAHON     |   16   |    M    |  485  |   1   |     50   |   169 |
| INSKIP      |    1   |    M    |  431  |   2   |    143   |    32 |
|             |    1   |         |       |       |    166   |     8 |
| DWYER       |    1   |    M    |  508  |   2   |    126   |    73 |
|             |    1   |         |       |       |    149   |   125 |
| HAIGH       |    4   |    M    |  458  |   2   |    149   |    70 |
|             |    1   |         |       |       |    126   |    10 |
| ALCOCK      |    3   |    M    |  484  |   2   |    143   |   128 |
|             |    1   |         |       |       |    166   |    40 |
| SMITH       |    3   |    M    |  483  |   3   |    230   |   188 |
|             |    1   |         |       |       |    220   |    21 |
|             |    4   |         |       |       |    300   |    80 |


| BUGDEN      |    3   |    M    |  456  |   2   |    118   |    42 |
|             |    1   |         |       |       |    140   |    40 |
| BROWN       |    5   |    M    |  430  |   2   |    104   |   101 |
|             |    2   |         |       |       |    150   |    29 |

While I have attempted to reproduce the evidence in the form of a table there are two qualifications which should be made. First, in some cases records were missing. The table assumes that the employee was not in the camp in the period where records are not held. In the end result, nothing turns upon this. Secondly, the table shows the total length of stay at a camp, but that figure in some cases includes multiple stays, so that the length of the time in camps is thereby inflated.

The parties divided the 19 employees into five categories said to be representative of all employees in receipt of camping allowances. They agreed upon a percentage dollar value which could be applied across the total of employees, having regard to these five categories. This is expressed in the following table:

|                       CATEGORY                |     PERCENTAGE   |
|                                               |  IN DOLLAR VALUE |
| Single, 1 camp, short stay in camp            |        0.5%      |
| Single, 1 camp, long stay in camp             |      17.8%       |
| Married, 1 camp, long stay in camp            |      54.2%       |
| Married, 2-3 camps, short stays in camp       |       1.6%       |
| Married, 2-3 camps, long stays in camp        |      25.9%       |

Finally, I should note that if I were to find that there is any taxable value for fringe benefit tax purposes then it is agreed that the proportion of declarations lodged by employees is 36.2%. This, however, the parties agreed should not trouble me as if I found that some or all of the payments in question were not exempt from fringe benefits tax, I should remit the matter to the Commissioner to determine questions of quantum.

Typical of the awards providing for the relevant allowance is the General Construction and Maintenance, Civil and Mechanical Engineering, &c, (State) Award, cl. 24(xii) of which provides as follows:

``Camping Allowance-

  • (d) Employees who are required to camp, either by direction of the employer or because no reasonable transport facilities are available to enable them to proceed to and from their homes each day, shall be paid a camping allowance of $8.50 for each day that the employee finds it necessary to remain in camp; provided that the employee shall not be entitled to the allowance prescribed in this sub- clause for any working day on which the employee is absent from duty except in case of sickness or for any reason beyond the employee's control: Provided further that the Department of Main Roads may provide a mess room where food provided by the employee or at the employee's expense is cooked by an employee paid by the employer, in which event, the camping allowance payable shall be half of the above.''

As can be seen, the Award provision does not express directly any purpose for the payment of the $8.50. However, the fact that the $8.50 may be reduced where a mess room is provided and food is cooked suggests that some part of the $8.50 must be related to food and its preparation. That view is confirmed by an analysis of the history of the provision.

It would seem that a general camping allowance, on a daily rate, was first introduced by Ferguson J in Engine Drivers, &c, General (Public Works Department, Irrigation Commission, Commissioner for Main Roads and Metropolitan Meat Industry Commissioner) Award on 12 December 1941 (64 IG 121) in the following terms:

ATC 4519

``Where employees are required to camp either by direction of the employer or because no reasonable transport facilities are available to enable them to proceed to and from their homes each day, they shall be paid a camping allowance of 15s. per week of five days or over. If in camp for less than five days they shall be paid 3s for each day they are compelled to remain in camp, but the allowances payable under subclause (i) of this clause and this subclause shall be paid once only and shall not be cumulative.''

His Honour's reasons for granting that allowance are reported at [1941] AR 721 relevantly as follows (at 740):

``In many camps employees are able to reach their homes at the week-end, but this often entails considerable expense. The camps are usually situated in isolated districts, away from ordinary shops and places of amusement. A shop carrying a varied stock is, however, often found in the camp. Men have to cook for themselves in the common kitchen and to eat either in their tents or at benches provided in or near the kitchen. Where there is a plentiful water supply showers are provided and there is generally a building where the men may meet for conversation and games.

A summing-up of the relative advantages and disadvantages of enforced camp life leads to the conclusion that some hardship is involved to the employees in living in these remote places. They are withdrawn from the society of their families and friends. In the event of sickness or accident, though first- aid treatment is available, some time must elapse before the patient can be taken to hospital or receive medical attention, and transport must often be made over rough roads.''

On 1 December 1944, the Full Bench of the Industrial Commission varied the Government Railways and Tramways (Construction) Award and the Government Railways, Gangers on Construction (Permanent Way-wages Staff) Award apparently following a dispute of railway employees at the Hawkesbury River Bridge. A Full Bench of the Commission, in an unreported decision delivered on 1 December 1944, after dealing with the decision of Ferguson J in Engine Drivers, said of it (at 4-5):

``In the course of this statement, however, he makes no reference to additional living cost involved in camping, presumably because there was no evidence on this point before the Commission when the said camping allowance was fixed. There is now uncontradicted evidence before the Commission with reference to the added cost and in our view this must be weighed in together with the matters mentioned by Ferguson J, in fixing a reasonable and adequate camping allowance and so correcting the anomaly in this respect we find have been established...

In the light of all the circumstances the Commission considers that all those men who are called upon to take over work or duties away from their usual homes and to camp on the job are entitled to be paid a sum of 4s per day camping allowance for each day the employees find it necessary to remain in the camp.''

The uncontradicted evidence does not appear from the Commission's reasons. However, it is clear that the amount of the allowance was calculated by reference to a number of components; the cost of food, the requisites and utensils required to be provided by the employer for life in a camp and the wear and tear of those requisites and utensils and the saving in domestic costs that would otherwise be incurred if living at home. These matters appear, however, ultimately to come down to two matters as appears from the following passage (at 4), namely the extra expenses of camping and the inconvenience and discomfort of it. Thus the Tribunal said:

``It is undoubtedly true that to the great majority of men living in conditions such as have been described at Hawkesbury River their life there is a departure from the normal and a departure that involves them in extra expense, inconveniences, and to a large extent discomfort. It means that men who normally would have their meals provided for them in conditions approaching a reasonable standard of comfort have to themselves prepare these meals when their day's work is finished. This constitutes, in our opinion, a set of circumstances which call for reasonable and adequate compensation.''

Thereafter, as Ferguson J observed in
Re Labourers, General (State) and Other Awards (1949) IR 757 at 763

ATC 4520

, the allowance of 4 shillings per day or 28 shillings per week of 7 days was taken as being:

``... intended to compensate men

  • (a) for taking over work or duties away from their usual homes and camping on the job, together with such disadvantages as might be associated with living under camp conditions and
  • (b) any added cost beyond the cost of living in their own homes.''

It would seem that the allowance was, thereafter, increased from time to time in accordance with the increased cost of living, but without particularising the component parts of the allowance.

The history therefore confirms what would be inferred from the terms of the present award, namely that the camping allowance had two components; the first, an amount to compensate for the disadvantageous conditions of living in a camp; the second, as part compensation to employees for additional costs of food beyond the cost of living in their own homes and perhaps other expenses caused to them by camping.

It follows that the allowance in question is a living-away-from-home allowance within the meaning of s. 30 of the Act, unless, in respect of additional expenses for which the allowance is intended to compensate, those expenses would, if incurred by the employee, have been within the meaning of the definition in s. 136(1), deductible expenses.

For the Commissioner it was submitted that there was no evidence to show precisely what the payments in question were intended to cover. Further, it was said that to the extent that the payments in question were intended to cover food, such expenditure would not have been deductible having regard to the decision of the Full Court of this Court in
FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177. Further it was submitted that in any event the expenditure intended to be covered by the allowance could just as easily include personal telephone calls, entertainment and the like, which clearly would not have been deductible expenditure. Reference was made, inter alia, to the decision of Burchett J in
FC of T v Toms 89 ATC 4373.

Having regard to the history of the awards to which reference has been made, it seems clear enough that the camping allowance, so far as it related other than to the disadvantages of camp accommodation, was intended to compensate for added costs to employees of living over and above the cost of living in their own homes. It must be said that having regard to the size of the allowance and the fact that some part of it was intended to compensate for the disadvantages of camp life, the component concerned with additional living costs was relatively modest. It certainly would have been inadequate to reimburse employees for luxuries which might be acquired by the employee in the course of living at the camp.

It must be borne in mind that the question is not whether particular items of expenditure incurred by an employee were deductible, but whether it would be concluded by a reasonable person that a defined part of the allowance, not being compensation for the disadvantages of living away from home, was to compensate for additional outgoings which, if incurred by the employee, would have been deductible under the ITA Act. Having regard to the modest amount of the allowance, I think that it can safely be concluded, and that a reasonable person would indeed so conclude, that whatever part of the allowance related to matters other than the disadvantages of camp life, that part was related to the additional cost of meals or other necessary expenditure incurred solely by reason of the employee living away from home and at a camp. The question, therefore, becomes not one of burden of proof but one of analysing whether in the circumstances in question the cost of meals or other necessary (and modest) expenditure would be deductible. It involves, in particular, analysing more closely the Commissioner's submission made before me that the cost of meals is deductible only in ``exceptional circumstances''.

The Commissioner's submission involves a misunderstanding of what is said in FC of T v Cooper. The issue in that case was the deductibility of an amount said to be for the additional food and drink consumed by a footballer at the direction of his coach to build up the footballer's weight. It was held that that expenditure was not deductible, either because it was not expenditure incurred by the footballer in gaining or producing assessable income, or alternatively that it was expenditure of a private nature.

Lockhart J referred to the test for deductibility contained in
Ronpibon Tin NL &

ATC 4521

Tongkah Compound NL
v FC of T (1949) 8 ATD 431 at 435; (1948-1949) 78 CLR 47 at 56, namely that to be an allowable deduction as an outgoing incurred in gaining or producing assessable income, the outgoing must be incidental and relevant to that end. His Honour continued (at ATC 4400; FCR 181):

``This test of deductibility has been explained in subsequent judgments of the High Court, so that to be deductible the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income.''

His Honour observed that the ``essential character'' test had also to be applied to determine whether the expenditure was private expenditure. There is nothing in the judgment of Lockhart J to suggest that expenditure on food will only be allowed as a deduction in extraordinary circumstances, as the Commissioner submits. What his Honour does say is that borderline cases may give rise to difficulty (see at ATC 4402; FCR 184).

In my judgment I emphasised that there is enshrined in the first limb of s. 51(1) a concept of deductibility of working expenses. I pointed out that it was necessary to determine the connection between the outgoing on the one hand, and the operations of the taxpayer which more directly gain or produce the taxpayer's assessable income, citing what was said by the High Court in
Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 11 ATD 147 at 149; (1956) 95 CLR 344 at 351. I took the view, as a matter of fact in Cooper's case, that the connection between the outgoings and Mr Cooper's activities of training for and playing football was too remote. I pointed out the difficulty for Mr Cooper where it was sought to be argued that the expenditure was additional expenditure, a somewhat ambiguous concept on the facts of the case.

Turning to the question of whether the expenditure was private, I said, inter alia (at ATC 4415; FCR 201):

``For the Commissioner, it was submitted that, except in a rare case, the essential character of food was always private. Exceptions for the cost of entertainment... and for meals taken while the taxpayer was away from home on a business activity, were acknowledged...

Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home. No such circumstance, however, intervenes here.''

Wilcox J, who dissented in Cooper, was of the view that there was a close connection between the outgoings of the taxpayer and his employment as a footballer. However, in referring to living-away-from-home expenses, his Honour said (at ATC pp 4404-4405; FCR 187-188):

``Take the instance of a taxpayer visiting another city for business purposes. The taxpayer incurs expenditure for meals at his or her hotel. On one view, the essential character of the expenditure is the sustenance of the taxpayer. Such a purpose has no connection with the derivation of assessable income; other than in the broad sense - irrelevant because it is applicable to everyone - that one must eat to live and, therefore, to work and to earn assessable income. However, the expenditure may also be characterised as being the cost of sustenance incurred by the taxpayer because of his or her absence from home on business. The difference between the two characterisations is that the latter takes account of the occasion of the expenditure. When this characterisation is adopted, a work-connection immediately appears and a deduction is granted.''

With respect, the same is true in the present case. Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

ATC 4522

The case of FC of T v Toms, to which reference has been made, clearly depended upon its own particular facts. The taxpayer in that case was a self-employed forest worker. During his working week he lived in a caravan in a bush camp approximately 108 kilometres from his family home. The caravan was also used by him for storing logging equipment and as a temporary shelter when work was interrupted by bad weather. One of the questions before the Administrative Appeals Tribunal and, on appeal, this Court was whether the taxpayer was entitled to a deduction for the cost of maintaining the caravan and other living expenses, such as additional costs involved in providing food at the camp site. The principal issue, however, was the deductibility of expenditure of travel between the home and the caravan. In holding that the taxpayer was not entitled to the deduction, Burchett J (at 4376) placed emphasis upon the fact that the caravan was rendered necessary:

``... as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the State forest, and its purpose was to enable him to retain his residence at Grafton although employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.''

The facts of the present case are quite different. First, each of the persons deemed hypothetically to have incurred the expenditure are employees. They are not carrying on their own business. Second, they are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps. The costs in question here are an incident of the employment. The costs in Toms were not.

It follows in my view that the amounts in question were deductible amounts and accordingly the benefits in question were excluded from the category of living-away- from-home allowance benefits under s. 30(1) of the Act.

Camp accommodation - residual benefit?

In the relevant fringe benefits tax years the Authority provided, at various work sites, caravans or huts for the accommodation of its staff and employees. These huts or caravans were generally located some distance away from nearby towns and were usually furnished with a simple bed, wardrobe and eating table. Washing, cooking and bathing facilities were provided on a communal basis.

Relevant awards, such as the General Construction and Maintenance, Civil and Mechanical Engineering, &c, (State) Award, provide for minimum facilities, conditions and standards for camps. The precise details are not relevant to the present case. The question for determination is whether that accommodation provided by the Authority is a residual fringe benefit. In so stating the issue, I have assumed that employees of the Authority actually obtain a ``benefit'', as defined, by the provision of this accommodation.

The scheme of the legislation, so far as it relates to the provision of accommodation of this kind for a limited period, is somewhat complicated. By force of s. 45, a benefit to an employee will be a ``residual benefit'', if not otherwise within the specified categories of benefits enumerated in Sub-division A of Divisions 2-11 of the Act. Clearly the present benefit is of that kind. Because the benefit is provided only in respect of, or during a period, it is a ``period'' residual fringe benefit as defined in s. 136(1) of the Act. Having regard to the definition of ``external period residual fringe benefit'' in s. 136(1) as meaning a period fringe benefit other than an in-house residual fringe benefit, it is clear that the benefit will be an ``external period residual fringe benefit'', it not being an ``in-house residual fringe benefit'' as defined in the same sub-section.

The taxable value (``TV'') of the ``external period residual fringe benefit'' will be determined by s. 51 of the Act. There is no dispute between the parties as to this value, being $12.00 per week and $13.23 per week, respectively. However, the provisions of s. 52 of the Act, if satisfied, operate to reduce the taxable value. Of the criteria for the operation of s. 52, s. 52(1)(a) is satisfied and the question is whether s. 52(1)(b) is satisfied also. The last- mentioned sub-section requires an assumption

ATC 4523

to be made that the recipient at the ``comparison time'', as defined in s. 136(1), had incurred and paid ``unreimbursed expenditure'' in respect of the provision of the ``recipients' benefit'', that is, expenditure in respect of the benefit no portion of which has been reimbursed. If such expenditure, equal in amount to the taxable value of the residual fringe benefit (known as ``gross expenditure''), would have been a ``once only deduction'' (referred to as the ``gross deduction''), the taxable value of the residual fringe benefit is reduced by the ``notional deduction'' (``ND''). The notional deduction is equivalent to the gross deduction, at least where there is no recipients' contribution: s. 52(1)(ba). The end result of the application of the formula, set out in s. 52 of the Act, namely, (TV − ND), in a case such as the present, is that the taxable value of the fringe benefit will be reduced to nil since the notional deduction is equal to the gross deduction which in turn equals the taxable value and the formula requires the notional deduction to be deducted from the taxable value of the residual fringe benefit.

The critical question, therefore, is whether the assumed gross expenditure by the recipient, that is to say the amount that an employee would have had to pay to provide the benefit for himself, would have been a once only deduction, that is whether a percentage of the expenditure could be deducted in a single year and no percentage of the expenditure could be deducted in any other year. There is thus raised the same issues in relation to accommodation as were raised in relation to whether the camping allowances are living-away-from-home allowances, not being deductible expenditure. In other words, the question raised is whether, if the employees paid for their own caravan or hut accommodation at or near the work sites, they would have been entitled to deduct the whole of that cost under s. 51(1) of the ITA Act.

There is a further issue between the parties as to whether the provisions of s. 52(1)(c) apply. The applicant submits that it does not, since the fringe benefit is an ``exclusive employee residual benefit'', that is, a benefit where, if the recipient had incurred expenditure in respect of the provision of the recipient's benefit, that expenditure would have been exclusively incurred in gaining or producing salary or wages. The Commissioner submits, on the other hand, that the benefit is not an exclusive employee residual benefit because the hypothetical expenditure would not have been exclusively incurred in gaining or producing salary or wages. Rather, it is said that it would have been incurred in meeting personal expenditure. Thus, the Commissioner's submission is that there would be need for each relevant employee to give to the applicant a declaration in a form approved for the purposes of s. 52(1)(c). Presumably that form has not been completed, at least in the majority of cases.

The Commissioner's submission that expenditure on accommodation represents expenditure on ordinary living expenses and hence is private or domestic in a case such as the present, misconceives the issue. For the reasons already given, an employee who is required as part of his employment to reside at the work site for periods of time and to bear the cost of his own accommodation, in circumstances where he has his own private house, will be entitled to a deduction for the cost of that expenditure. It is submitted also for the Commissioner, having regard to the hypothetical context in which the deductibility question is posed and the lack of evidence in respect of individual employees, particularly as to whether they do in fact maintain separate homes, the Authority has failed to satisfy the burden of proof.

The general rule which I have stated might no doubt admit of exceptions. An employee who had no private home and was employed indefinitely to work at a particular site and did in fact work for the whole of his employment at that site, might be said to have chosen to live at the site so that the cost of his accommodation there would be private. The evidence in the present case however makes that a highly unlikely case. On the evidence, employees are sent to work away from their home generally for short periods of time and are told that they may be required to move from place to place. They are not told that their employment in a particular place is indefinite. In the circumstances, there seems little scope for an inference that living at a camp or caravan, as the case may be, is a choice made by the employee. Rather, it is an incident of the employment of that employee and if the cost were incurred by him would be a deductible outgoing under s. 51(1) of the ITA Act.

ATC 4524

Accordingly I would allow the applicant's appeal and make orders as follows:

1. Appeal allowed.

2. Objection decisions set aside.

3. Remit all assessments the subject of objection decisions in respect of the fringe benefits tax years ending 31 March 1987 and 31 March 1988 to the respondent for reconsideration in accordance with law.

4. Respondent to pay applicant's costs.

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