From what Supply Side understands, companies may end up paying the same in FBT as they do in transport costs for their workers.

This change to the legislation covers all overseas FIFO travel that companies have supplied to their workers after July 1, 2009.

These companies could owe the government millions of dollars in FBT.

July 1, 2009, is the date the Australian government did away with the old 91-day income tax exemption. Under this arrangement, any worker who earned money overseas for more than 91 days straight did not have to report it for tax purposes.

With that change, the transport to and from these foreign workplaces became a fringe benefit.

The irony here is delicious. FIFO was created as a result of the government introducing FBT in 1986.

In Australia there is an exemption for FIFO transport if it is to a “remote location in Australia”

What the government is attempting to do – as laid out in the Tax Laws Amendment (2001 Measures No. 2) Bill 2011: FBT exemption for fly-in, fly-out – is bring this “remote” exemption to overseas FIFO travel too.

The problem is that companies which send workers overseas to “remote” sites have to prove their sites are remote. The judgement of whether a site is remote seems pretty subjective, given some of the examples provided in the explanatory material attached to the exposure draft.

According to that document, these factors should be considered when determining whether a site is remote:

• The distance and time it takes to travel from the worksite to the nearest urban area
• The population of the nearest urban area
• Accessibility of the overseas site
• Safety and the crime rate, adequacy of local law enforcement, or health risks in the surrounding areas to the worksite (and whether the nearest urban area is reasonably safe if adequate precautions are taken)
• Location of the worksite relative to the arrival destination in the foreign country (for example, an international airport)
• The quality of the roads between the nearest urban area and the worksite
• The amenities and facilities available in surrounding areas close to the worksite.

In the last point, those amenities include, but are not limited to: public transport; the availability of housing; a library, public park or other recreational facilities; places for buying a variety of foods; suitable schooling; a reliable electricity supply and access to clean drinking water and a sewage system; access to the internet and mobile phone reception; and access to facilities such as banks, and medical supplies and facilities.

The explanatory material says, however, that no single factor is expected to be determinative. Instead it is the balance of these factors that will count.

Here lies the problem. A company may balance up these factors and conclude that its workers are in a remote area and therefore their travel to the site is FBT exempt. However, the Australian Taxation Office may not balance things up the same way. The end result may be a big FBT bill that may be spread over several years.

Here are a couple of examples from the explanatory material.

In the first example, Australian workers are employed on a FIFO basis from their homes in Australia at a worksite located in Papua New Guinea.

“The worksite is located 20 kilometres from a small town with a population of 2000 people, and 350 kilometres from a larger city of 500,000,” the example says.

“There is nothing located closer to the worksite than the small town.

“The small town has local markets for buying fresh food, many street food stalls, and some accommodation with running water and sewage, but there are no paved roads, no public libraries, and a lack of emergency medical facilities. The water must all be boiled before drinking.

“Due to the poor road quality and no direct route between the worksite and the town, the worksite location is more than five hours drive from the city, which has accommodation, restaurants and generators available for electricity, and a limited number of roads, as well as bus services.

“Provided that any factors not mentioned in the example do not alter the outcome, on balance, the worksite would be considered remote. The small town in close proximity to the worksite has a very small population, and limited facilities, such as sealed roads and doctors or access to medical facilities, [and] is not an urban area.

“In addition, the next closest urban area to the worksite is located 350 kilometres from a larger town, with poor road quality adding to the long trip. This town would not be considered to be within close proximity to the worksite.”

Not surprisingly, this is considered “remote” and therefore FIFO transport to and from the worksite would be FBT exempt.

Okay. Have a look at this one:

“Martin works overseas for an Australian company, Mitchell Co on a fly-in fly-out basis.

“The nearest city to his worksite has a population of 300,000 people and is 20 kilometres from the worksite on a sealed highway. The road between the worksite and the city is not direct and the trip takes around 40 minutes.

“The city has drinkable water and local markets for buying fresh food and some accommodation with in-house bathrooms and other amenities such as a sewage system, medical facilities and multiple schools.

“The next nearest urban area is 200 kilometres away, with a population of 400,000, linked to the closer town by sealed highway. However, it is wise to take extra safety precautions when travelling between the cities, as there is a high crime rate and security can be an issue.

“Provided certain precautions are taken, these risks can be minimised. In addition, the closer city does not have a consistent and regular electricity supply, with frequent power outages.

“Provided no other factors not mentioned in the example do not alter the outcome, on balance, the worksite would not be considered remote.

“The town located in very close proximity to the worksite has a sizeable population, with sealed roads and limited amenities. Although there is a high crime rate in the area and a lack of regular electricity supply, extra safety precautions can be taken and generators could be used to provide a more reliable electricity supply. There is adequate development in the area to ensure that the area is not considered remote.”

Therefore, flying Martin to the site and back home again would incur FBT. Oh and that is on top of the generator the company would have to supply to handle the dodgy power and possibly the security needed.

RSM Bird Cameron tax director Rami Brass said while the government had recognised the need to extend the FBT exemption for FIFO assignments to remote overseas locations, certain issues had not been addressed.

He said the government should include overseas under the definition of “remote” instead of going with the subjective definition approach it had opted for.

“Most importantly the definition of remote cannot be easily applied overseas and isn’t objective enough to be applied consistently and fairly,” Brass said.

It was tough enough for resources companies to get workers to go to some of these locations anyway.

Burkina Faso may sound exotic but it does not seem to turn up on many tourists’ itineraries. Yet there are a number of resource-sector workers who fly out of Australia to work there, often 12-hour shifts in very trying conditions.

“Understanding the hardships of these assignments makes it difficult to see how providing the transport required for these shifts could be perceived as an employee benefit – particularly when they are being forced to be away from their families,” Brass said.

One of his clients was considering asking its employees to reside in the countries it was operating in. If that did not work, Brass said, it would look at using greater amounts of local labour or employing non-Australian residents.

So how is FBT calculated?

Brass said in simple terms the amount paid for the fringe benefit was doubled and then 46% of that was the FBT owing.

For example, consider a company that has spent $200,000 for a year flying its workers to and from a worksite in another country. Assume that its worksite has been deemed to not be remote for FBT purposes. Therefore, the company would pay the Australian government about $184,000 in FBT.