Edited version of private advice

Authorisation Number: 1051635097414

Date of advice: 15 April 2020

Ruling

Subject: FIFO transport FBT exempt benefits

Question

Will the proposed provision of flights to FIFO employees between their usual place of residence and the relevant transportation hubs constitute exempt residual benefits pursuant to subsection 47(7) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following periods:

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

The scheme commenced on:

FBT year started 1 April 20XX

Relevant facts and circumstances

The employer company delivers maintenance and production services to the broader business operations of the corporate group. Accordingly, the company's employees work at various sites in Australia where the business of the corporate group is carried on.

The company make use of Fly-In Fly-Out (FIFO) arrangements for employees whose usual place of employment is in a remote location. These arrangements cover transport of employees from certain transportation 'hubs', including via charter or commercial flights. This travel is borne by the company and not subject to any form of salary sacrifice arrangement. This travel is not being considered for the purposes of this ruling request.

The company's FIFO employees are, though, required to meet the cost of getting to the transportation hubs.

The company provides accommodation to the FIFO employees within proximity of the remote work sites.

Given the remote location of the work sites, the company's employees work on a FIFO roster.

Contractually, the FIFO employees are required to work at multiple remote sites.

The FIFO employees with the relevant skills as equipment maintenance technicians are required to work in different locations to perform their duties, as compared to having employees with these skills situated permanently at each location, for the following reasons:

·         Critical skill availability

·         Efficiency and productivity

The FIFO employees do not have a head office location that they attend if they are not rostered to work at a remote site.

Currently, the employees initially incur the costs of travel from their usual place of residence to the relevant transportation hub and return.

The company intends to allow the FIFO employees to salary sacrifice the cost of travel to the transportation hub (and for the cost of the return travel from the transportation hub back to their usual place of residence). Under the proposed arrangements, the employee's flights between their home location and the transportation hub will be subject to the following booking and payment arrangements:

·         The FIFO employee will complete a web based form detailing the required travel between their home location and the relevant transportation hub;

·         The company's travel administrator, upon receipt of the completed form, will book the employee's flights between their home location and the relevant transportation hub via an online portal; and

·         The travel administrator will pay for the flights with a Corporate credit card held for central purchasing purposes.

When requesting the travel via the web-based form, the employee will authorise the flight cost borne by the company to be sacrificed against the employee's subsequent salary. This agreement would authorise the reimbursement to the company of the flight costs from the employee's pre-tax earnings before the employee has earned the entitlement to receive that amount as salary or wages.

Dependant on flight schedules, employees may be required to spend a night at the transportation hub location whilst en route. In these circumstances, employees will be responsible for booking and paying for accommodation, if required. The company will not cover the cost, nor assist with the booking of this accommodation.

The FIFO employees, whilst at the remote work locations, stay in employer provided accommodation at or near to site. The accommodation is either on, immediately adjacent to or a short commute from site.

The FIFO employees work set rosters, which sees them work a number of days at site followed by a period of leave where they must leave site and return to their usual place of residence.

The FIFO employees, who will be eligible to salary sacrifice their travel costs, will be based at various sites that are not in or adjacent to an eligible urban area. Accordingly, they are in an area designated as a 'remote area'.

The distance between the remote work location and the FIFO employee's usual place of residence means daily travel between the two is unreasonable. Relevantly, employees need to confirm they do not live within a reasonable daily commute of the remote work site to be eligible to salary sacrifice the cost of the travel.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(7)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 150

Reasons for decision

Summary

The proposed provision of flights to FIFO employees between their usual place of residence and the relevant transportation hubs will constitute exempt residual benefits pursuant to subsection 47(7) of the Fringe Benefits Tax Assessment Act 1986.

All legislative references are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Detailed reasoning

The provision of the flights, under a salary sacrifice arrangement, will give rise to a benefit as defined in subsection 136(1).

The benefit will be a fringe benefit where it meets the definition of 'fringe benefit' as defined in subsection 136(1).

The definition of fringe benefit in subsection 136(1) excludes at paragraph (g) a benefit that is an exempt benefit in relation to the year of tax.

For the purposes of this ruling, the relevant exemption is the exemption provided under subsection 47(7) for a residual benefit that consists of the provision of fly-in fly-out transport.

Is the benefit a residual benefit?

As section 47 provides an exemption for residual benefits that consist of the provision of fly-in fly-out transport, it is necessary to consider whether the benefit is a residual benefit.

Section 45 provides that a benefit will be a residual benefit if it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). Divisions 2-4 and 6-10 are not relevant to this scheme. Division 5 and Division 11 may be relevant to this scheme.

Expense payment benefits

Division 5 applies to expense payment fringe benefits.

Section 20 states that an expense payment benefit will arise where the provider either:

a)    Makes a payment in discharge, in whole or in part, of an obligation of another person (the recipient) to pay an amount to a third person in respect of an amount of expenditure incurred by the recipient; or

b)    Reimburses the recipient, in whole or in part, in respect of an amount of expenditure incurred by the recipient.

The cost of the flights will be paid for by the employer as a business expense - the employer is discharging their own obligation. The employer is therefore, not discharging an obligation of another person to pay a third person, nor providing a reimbursement to another person in respect of expenditure incurred by that person.

Section 150, dealing with credit cards, supports this position on the FBT treatment of the use of the Corporate credit card held for central purchasing purposes. Section 150 states:

For the purposes of this Act, where, in respect of the employment of an employee of an employer, the employee or an associate of the employee uses a credit card issued by a third person to, or to an associate of, the employer to obtain the provision of a benefit on credit from a fourth person, the following provisions have effect:

(a)  the fourth person shall be taken to have provided the benefit, in respect of that employment, under an arrangement between:

(b)  (i) the employer or the associate of the employer, as the case requires; and

(ii) the fourth person;

(c)  where the employer or the associate of the employer, as the case may be, incurred expenditure to the third person under an arm's length transaction in respect of the provision of the benefit - the employer or the associate of the employer, as the case requires, shall be taken to have incurred that expenditure to the fourth person under an arm's length transaction.

The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986, states, with respect to section 150:

Clause 150: Credit cards

The effect of clause 150 is to ensure, broadly, that benefits obtained by an employee or an associate through the use of a credit card issued to an employer or an associate will be treated, where appropriate, as taxable fringe benefits [emphasis added].

It will apply where, in respect of the employee's employment, use is made of such a credit card to obtain goods or services. The person e.g., a retailer who provides the goods or services will be taken to have provided the relevant benefit in respect of the employee's employment, under an arrangement with the employer or, if the card was issued to an associate of the employer, under an arrangement with associate.

In addition, where the employer or associate has borne the cost of the benefit by paying the issuer of the credit card, the relevant expenditure will be taken to have been incurred to the actual provider of the benefit e.g., the retailer.

Subsection 150(a) provides that where an employee or an associate of the employee acquires a benefit on credit by using a credit card issued to the employer or an associate of the employer, the benefit is considered to have been provided under an arrangement between the employer or the associate of the employer, and the person who provided the recipient with the benefit. This means that the benefit is taken to have been given directly to the recipient by the employer, not indirectly as an expense payment benefit. Instead, the employee will be the recipient of a property benefit or a residual benefit, as is the case here.

In addition, under subsection 150(b), as the employer has borne the cost of the benefit directly by paying the issuer of the credit card for the business expense, the employer is taken to have incurred the relevant expenditure to the actual provider of the benefit, in this case the airline.

The benefit is therefore not an expense payment benefit under section 20.

Property benefits

Division 11 applies to property fringe benefits.

Section 40 states:

Where, at a particular time, a person (in this section referred to as the 'provider') provides property to another person (in this section referred to as the 'recipient'), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) provides the following definitions relevant to property benefits:

'property' means:

(a)          intangible property; and

(b)          tangible property.

'tangible property' means goods and includes:

(a)          animals, including fish; and

(b)          gas and electricity.'

'intangible property' means:

(a)          real property;

(b)          a chose in action; and

(c)          any other kind of property other than tangible property;

but does not include:

(d)          a right arising under a contract of insurance; or

(e)          a lease or licence in respect of real property or tangible property.

'property benefit' means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A or Divisions 2 to 10 (inclusive) of Part III.

The term 'goods' is not defined in the FBTAA and therefore takes its ordinary meaning. The Macquarie Dictionary Online, 2017, Macquarie Dictionary Publisher, an imprint of Pan Macmillan Australia Pty Ltd, www.macquariedictionary.com.au (the Macquarie Dictionary) defines the term 'goods' relevantly at paragraphs 1 and 2 as:

1. (plural) possessions, especially movable effects or personal belongings.

2. (plural) articles of trade; wares; merchandise, especially that which is transported by land. ...

The airline ticket therefore does not meet the definition of 'goods' and is therefore not tangible property.

Paragraph 136(1)(e) relevantly excludes from the definition of intangible property leases or licences in respect of real property or tangible property.

Licence is not defined in the FBTAA, the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997. It therefore takes on its ordinary meaning.

The Macquarie Dictionary defines the term 'licence' (as relevant here) as:

licence

noun

1.            formal permission or leave to do or not to do something.

2.            formal permission from a constituted authority to do something, as to carry on some business or profession, to be released from jail for part of one's sentence under specific restrictions, etc.

3.            a certificate of such permission; an official permit. ...

The ticket provides the employee with the formal permission to receive transport on the aeroplane and is therefore not intangible property.

As the airline ticket is neither tangible nor intangible property, the provision of the ticket is not a property benefit.

Therefore, the benefit provided by the employer, does not fall within any of the provisions of Subdivision A of Divisions 2 to 11 and as such is a residual benefit per section 45.

Is the benefit exempt under subsection 47(7)?

As the benefit is a residual benefit, consideration needs to be given as to whether the benefit is an exempt residual benefit under subsection 47(7).

Subsection 47(7) states

Where, during a period of employment with an employer:

(a)          an employee's usual place of employment is:

(i)            on an oil rig, or other installation, at sea; or

(ii)           at a location in a State or internal Territory but not in, or adjacent to, an eligible urban area; or

(iii)          at a remote location that is not in a State or internal Territory; and

(b)          the employee is provided with residential accommodation, at or near that usual place of employment, by:

(i)            the employer; or

(ii)           an associate of the employer; or

(iii)          a person (in this subparagraph referred to as the 'arranger') other than the employer or an associate of the employer under an arrangement between:

(A)         the employer or an associate of the employer; and

(B)         the arranger or another person; and

(c)          the employee, on a regular basis:

(i)            works for a number of days and has a number of days off; and

(ii)           on completion of the working days, travels from that usual place of employment to his or her usual place of residence and, on completion of the days off, returns from his or her usual place of residence to that usual place of employment; and

(d)          the employee is provided with transport on a regular basis in connection with the travel referred to in subparagraph (c)(ii) and that transport is provided by:

(i)            the employer, or

(ii)           an associate of the employer; or

(iii)          a person (in this subparagraph referred to as the 'arranger') other than the employer or an associate of the employer under an arrangement between:

(A)          the employer or an associate of the employer; and

(B)          the arranger or another person; and

(e)          it would be unreasonable to expect the employee to travel on a daily basis on work days between:

(i)            that usual place of employment; and

(ii)           the location of the employee's usual place of residence;

having regard to the location of those places;

the residual benefit constituted by the provision of transport referred to in paragraph (d) is an exempt benefit.

The terms of this provision need to be considered in respect of the circumstances of the employer to determine whether the provision is satisfied so that the provision of the fly-in fly-out travel is exempt from fringe benefits tax as an exempt residual benefit.

(A) Is the employee's usual place of employment at a remote location in Australia or overseas, or on oil rigs or other installations at sea?

Usual place of employment

Paragraph 47(7)(1)(a) requires there to be a usual place of employment. Subsection 136(1) defines employment: "in relation to a person, means the holding of any office or appointment, the performance of any functions or duties, the engaging in of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee".

That is, employment is defined by the performance, engaging or doing of the things that the person is employed to. It follows that an employee's usual place of employment is the place where those things are usually (i.e. habitually) performed. The usual place of employment for a FIFO employee is any of the remote sites that they can be rostered to attend to perform the services as agreed under their employment contract.

An employee may have more than one regular workplace. This position aligns with general industry practice as well as the ATO view in Draft Taxation Ruling TR 2019/D7, where it is stated at paragraph 21:

"In some employment arrangements there may be more than one regular workplace established. This may be expressly provided for in the employment agreement or contract between the employer and employee, or it may arise as a matter of practice in the relationship between employer and employee. A second or subsequent place of work would become a regular place of work if it has become a normal or routine place where the employee works".

The eligibility criteria in relation to subparagraph 47(7)(a)(ii) should be considered in their entirety such that OS employees have a defined usual place of employment (i.e. all sites in Australia).

Accordingly, as long as that usual place of employment is in a remote location in a State or internal territory, subparagraph 47(7)(a)(ii) will be satisfied. Relevantly, the relevant FIFO employees may work at multiple sites, but they will always be remote sites, as established below.

This would mean the key requirement is for the employee to be usually located at a remote location (not usually located in a specific or static remote location).

Remote location

A remote location is one that is not located in or adjacent to an 'eligible urban area' as defined in section140.

Under paragraph 140(1)(a), an 'eligible urban area' is an area that is either:

·         situated in a zone, as defined for the purposes of the zone offset or rebate in section 79A Income Tax Assessment Act 1936, and is an urban centre with a 1981 census population of not less than 28,000; or

·         not situated in a zone and is an urban centre with a 1981 census population of not less than 14,000.

Under paragraph 140(1)(b), a location is adjacent to an eligible urban area if, at 24 June 1986 (being the commencement date of section 140), it was:

·         less than 40 km by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of less than 130,000; or

·         less than 100 km by the shortest practicable surface route from the centre of an eligible urban area with a 1981 census population of not less than 130,000.

The employee's usual place of employment during their assignment period is not situated in or adjacent to an eligible urban area for the purposes of section 140.

(B) Are the employees provided with accommodation at or near the worksite on working days by the employer, an associate of the employer or an arranger?

The employees are provided with accommodation at or near the worksite on working days by the employer.

(C) Do the employees, on a regular basis, work for a number of days followed by a number of days off, and travels to their usual place of residence on their days off?

The employees work for a number of days on and have a number of days off. On completion of the work days, the employees travel from that usual place of employment to his or her usual place of residence. On completion of the days off, the employee returns from his or her usual place of residence to that usual place of employment.

(D) Is the employee regularly provided with transport in connection with the travel between their usual place of residence and place of employment?

The employees are provided with transport (arranged and paid for by the employer) on a regular basis, being flights between their home location and the relevant transportation hubs. The employer then provides additional flights to transport the employees between the transportation hubs and the site, although these additional fights are not being considered for the purposes of this ruling.

In looking at whether the transport provided to an employee by the employer, being the flights between their home location and the transportation hubs, is 'in connection' with the employee's travel between their usual place of residence and place of employment, reference can be made to Taxation Determination TD 2015/12 Fringe benefits tax: when are the duties of the employment of an employee of an employer who is a government body exclusively performed in, or in connection with, a public hospital or a hospital carried on by a society that is a rebatable employer?, which states in part:

53. In Collector of Customs v. Cliffs Robe River Iron Associates per Bowen CJ, Norling and Neaves JJ at paragraph 16:

The meaning of the word 'connection' is both wide and imprecise. One of its common meanings is 'relation between things one of which is bound up with, or involved, in another.'

The meaning of the phrase 'in connection with' was discussed in Burswood Management Ltd v A-G (1990) 23 FCR 144. In a joint decision the court said: 'The words "in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear.'

This means that to be 'in connection with' the travel undertaken between the employee's usual place of residence and their usual place of employment, the transport provided by the employer does not have to be a 'door to door' service. It can form part of the overall travel undertaken providing the start and end points are the employee's usual place of employment and their usual place of residence.

Therefore the return flights between the transportation hubs and the employee's usual place of residence are 'in connection with the travel referred to in subparagraph (c)(ii)'.

(E) Having regard to the location of the two places, is it unreasonable to expect the employee to travel to and from work on a daily basis?

It would be unreasonable to expect the employee to travel on a daily basis on work days between the employee's usual place of employment and their usual place of residence, having regard to the location of these places.

The requirements of subsection 47(7) are met and the provision of the fly-in fly-out travel is therefore exempt from fringe benefits tax as an exempt residual benefit.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).