Judge rejects company’s attempt to claim Fifo travel to Queensland LNG project as $13m tax deduction
A construction company faces a $13m tax bill after the federal court rejected its claim that fly-in fly-out worker costs at an isolated Queensland gas project were fully deductible.
The federal court in Queensland this week rejected the appeal by the Australian arm of US multinational Bechtel against the commissioner of taxation concerning its tax claims for a liquefied natural gas (LNG) project about 470km north of Brisbane.
Bechtel was contracted to build three large LNG plants and related infrastructure on Curtis Island, near Gladstone, which is accessible only by sea or air.
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Any skilled workers that the company could not source from the Gladstone area were flown to the island from across Australia and the world and were housed in temporary camp accommodation during roster periods known as “swings”.
The number of workers on the Curtis Island project peaked at 10,000 in late 2013.
Such fly-in fly out (Fifo) arrangements are common for mining and energy projects, especially in remote areas.
The Australian Taxation Office assessed Bechtel’s Fifo travel expenses between March 2012 and March 2019 as residual fringe benefits under the Fringe Benefits Tax Assessment Act.
Bechtel accepted this assessment but argued the taxable value thereof should be reduced to nil, because those expenses satisfied the “otherwise deductible” test.
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The commissioner of taxation did not accept this argument, leading to a dispute over a $13,014,296 potential tax bill.
A key argument in the appeal was whether the employees could have claimed the travel expenses as their own tax deductions had they paid the expenses themselves.
Bechtel pointed to a previous ruling in favour of another construction company, John Holland Group, which was able to deduct the cost of flying workers from a major city airport to a remote work site.
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The commissioner submitted that the John Holland decision was not relevant as the workers in that situation were considered to have started work when they arrived at the major city airport.
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After hearing testimony from Curtis Island workers and a witness from Bechtel’s human resources department, Justice John Logan found that most workers were not compensated for the time they spent travelling to the work site.
This finding meant that no matter the complicated route that workers took to Curtis Island, involving multiple flights, ferries and bus trips, it held the same non-deductible status as any other person travelling from home to work.
“Bechtel might, by a change in place of rostered start time, have made such expenses meet the ‘otherwise deductible’ test … but that was not the employment model it chose,” Logan said.
Bechtel’s appeal was dismissed with costs.