Salary sacrificing FIFO travel costs

Salary sacrificing FIFO travel costs

Daniel Hodgson and Hayley Lock discuss the compromises employers need to consider to encourage employees to work in remote locations on fly-in-fly-out (FIFO) arrangements.

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metal mining

Through a combination of client requirements and internal cost controls, some employers no longer throw money at employees to encourage them to work in remote locations on fly-in-fly-out (FIFO) arrangements.

This is evidenced by a general shift by many resource companies from previously funding employees travel cost to their remote worksite to requiring FIFO workers to pay for their own travel costs.

Whilst the industry is focusing on costs, it may however remain necessary for some employees to work in remote locations under FIFO arrangements. To achieve this compromise, employers are looking to allow employees to salary package travel costs and therefore maximise their net remuneration. For salary packaging travel costs to be effective, the travel provided under the arrangement must be exempt from fringe benefits tax (FBT).

An FBT exemption for FIFO travel costs is available (in section 47(7) of the FBT Act) only where the employer is the provider of the benefit and incurs the expense directly. Historically, there has been difficulty in arguing that the salary packaging FIFO travel arrangements administered by some salary packaging providers meets this criteria as the employee would incur the expense directly.

In CR2017/18 released today, the Australian Taxation Office (ATO) accepts that fringe benefits arising from salary packaged FIFO travel costs are exempt under 47(7) for the arrangements administered by McMillian Shakespeare.

Previously we have looked at the long term viability of FIFO arrangements. Whilst the future prospect may be that employees relocate to, and live in the remote areas, in the interim this class ruling (and we anticipate the implementation of similar arrangements by other packaging providers) supports that salary packaging FIFO travel costs can be a tax effective way to incentivise employees.

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