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Tax Law – Airline transport fringe benefits (Part 1)

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This article is part 1 of our two-article series on Airline Transport Fringe Benefits. You can find part 2 by clicking on the following link:

A classic form of fringe benefit is the provision of air travel to employees. For the most part, such fringe benefits will be covered by residual fringe benefits. However, in certain circumstances airline transport benefits to employees of airlines, or their associates, have to be treated under a special FBT regime.

When applicable

Airline transport fringe benefits apply only where employees, or associates of employees, of airlines or travel agents are given free or discounted air travel. However, the regime only kicks in where the benefit is subject to stand-by restrictions that apply to such employees.

What are stand-by restrictions?

Stand-by restrictions are customary industry stand-by arrangements, such that the relevant employees have rights subordinated to those of normal customers.

This means that if the employee/associate is not subject to such restrictions, the benefit will be calculated differently.

Stand-by value

The taxable value of an airline transport benefit is the “stand-by value” of the benefit, minus any employee contribution.

The stand by value varies according to whether the travel is domestic or international, and the type of air service.

Domestic travel

The stand-by value of the benefit for domestic travel is:

  • where the provider operates the service, and it is a scheduled passenger air service – the value is 37.5% of the lowest publically advertised economy airfare the provider provides for that time and route;
  • where the service is other – the value is 37.5% of the lowest publically advertised economy airfare “a carrier” provides for that time and route; and
  • where the service is a combination of air services and cannot be substituted for a single air service at that route and time – the value is the value is 37.5% of the lowest publically advertised combination of economy airfares that “carriers” provide for that time and route

In any other situation the stand-by value is 75% of market value.

When determining what “a carrier” other than the provider would charge for the air service, published material available to the public may be consulted.

International travel

The stand-by value for international travel is identical to domestic travel, except that “lowest published fare” is restricted to that published during the relevant FBT year, and excludes group discounts.

Example: Stand-by value – international travel

J Co is a travel agent with several employees. One of them is K.

J Co, due to its status as a travel agent, has the capacity to offer flights to its employees cheaply, provided the employees are subject to stand-by restrictions.

K is offered an airline trip to the island of Orkney, UK. In order to get to Ornkey, K has to fly from Sydney Airport to Glasgow Airport, and then take a second flight from Glasgow to Kirkwall Airport.

K is subject to stand-by restrictions. He cannot get on the flight until the airline is certain that no normal customers wish to use his seat.

No airline offers an air trip direct from Sydney to Orkney. However, several offer the trip split into two parts, like the trip offered by J Co. The lowest publically advertised trip of this sort during that FBT year is offered by British Airways for $3,500. This is advertised to the public on websites and brochures.

The taxable value of the trip is therefore 37.5% of this advertised amount, ie $1,312.50, minus any contribution by K.

Note that this system, by definition, puts the onus on the employer to find the cheapest publically advertised trip of a similar nature, in order to reduce the taxable value of the benefit.

(Part 2 of this article will deal with the vexed question of consumer loyalty programs and similar discounts).


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