CASE 54/95
Members:TE Barnett DP
SD Hotop SM
RD Fayle SM
Tribunal:
Administrative Appeals Tribunal
TE Barnett (Deputy President), Assoc Prof SD Hotop and RD Fayle (Senior Members)
The applicant lodged its Fringe Benefits Tax return for the year ended 31 March 1994 on or about 27 May 1994 which, by reason of s 72 of the Fringe Benefits Tax Assessment Act 1986, [ ``the FBTAA''] is deemed to be a notice of assessment under the hand of the respondent and served on the applicant at the time of lodgment.
2. On 2 June 1994, pursuant to s 14ZU of the Taxation Administration Act 1953, [``the Administration Act''] the applicant lodged a notice of objection against the deemed
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assessment, which, inter alia, objected against the inclusion of $385,560 of taxable value attributed to purported living-away-from-home allowances [LAFHA] paid to certain employees of the applicant during the year of income ended 31 March 1994.3. Not having received a reply from the respondent by 5 August 1994, the applicant, pursuant to s 14ZYA(2) of the Administration Act, requested that the respondent determine the objection. In response, on 6 October 1994, the respondent, after having sought and received further relevant information from the applicant, notified the applicant that the objection had been considered and disallowed. The applicant then referred this objection decision to this Tribunal for review pursuant to s 14ZZ of the Administration Act. It is that decision, to disallow the objection lodged by the applicant, that is under review.
4. At the hearing, the applicant was represented by Mr W Martin QC and the respondent by Mr S Owen-Conway QC. The applicant called evidence from Mr J Elliott, a qualified British Foreign Going Master working in marine surveying and consultancy, and Mr M Capelle, an electrical engineer and Member of the Society of Petroleum Engineers, whilst Mr J Bell, a Drilling Operations Consultant, gave evidence for the respondent. The Tribunal had before it the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. Several exhibits were taken into evidence including a video of the relevant vessel viewed at the hearing.
5. The issue is whether the sum of daily allowances of $31.50 per employee, paid to employees working on an offshore vessel rigged to drill exploratory holes at sea, to discover petroleum or gas hydrocarbons, is a ``living-away-from-home allowance'' benefit within the terms of s 30(2) of the FBTAA. The primary contention of the applicant is that the vessel is neither ``an oil rig'' nor ``other petroleum or gas installation, at sea'' within the meaning of that subsection. Its secondary contention is that the accommodation provided to the workers whilst living on the vessel is not ``residential accommodation'' within the meaning of that subsection. Therefore, on either count, the aggregate amount of $385,560 is not a taxable fringe benefit in terms of the FBTAA.
6. The respondent, on the other hand, contends that the allowance falls within the provision because the vessel in question is an ``oil rig, or other petroleum or gas installation, at sea'' and that the on-board accommodation is properly described as ``residential accommodation''.
7. Subsection 30(2) of the FBTAA provides:
``30(2) If:
- (a) at a particular time after 10 October 1991, in respect of the employment of an employee of an employer, the employer pays an allowance to an employee; and
- (b) the employee's usual place of employment is on an oil rig, or other petroleum or gas installation, at sea; and
- (c) the employee is provided with residential accommodation at or near that usual place of employment; and
- (d) the allowance is expressed to be paid as a living-away-from-home allowance; and
- (e) no part of the allowance is covered by subsection (1); and
- (f) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for disadvantages to which the employee is subject, during a period, by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;
the payment of the whole of the allowance constitutes a benefit provided by the employer to the employee at that time.''
8. Once it is established that the payment is such a benefit then by operation of the definitions of ``fringe benefit'' and ``living- away-from-home allowance benefit'' in s 136(1) its taxable value is determined by s 31(b), being the amount of the ``recipients allowance'' which is also defined in s 136(1) as:
```recipients allowance' , in relation to a living-away-from-home allowance fringe benefit, means the allowance, or part of the allowance, the payment of which constitutes the fringe benefit;''
9. Therefore, should it be that the daily allowance of $31.50 is a s 30(2) benefit then the whole amount is the ``recipients allowance'' and therefore becomes part of the employer's
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10. It is observed that, despite the FBTAA having a prescriptive approach embracing an extensive use of interpretative provisions which establish a network of interactive definitions, none of the terms ``oil rig'', ``petroleum or gas installation'' or ``residential accommodation'' is defined separately therein.
11. The applicant accepts the respondent's contention that the allowance is not within the scope of any of the exclusions to the s 136(1) definition of ``fringe benefit'', whilst maintaining its contention that the allowances are not ``living-away-from-home allowance'' fringe benefits.
12. The parties agree that, in relation to s 30(2) of the FBTAA, paragraphs (a) and (d) to (f) are not in contention, whereas the application of paragraphs (b) and (c) to the applicant is contested.
The evidence
13. The applicant's purpose in calling both Mr Elliott and Mr Capelle was to establish that the term ``oil rig'' is not a technical term ordinarily used in the oil exploration industry, either in relation to onshore or offshore drilling activities. The evidence is that essentially there are six different configurations of drilling units - a land rig, a submersible, a small jack-up, a large jack-up, a drillship and a semi- submersible. These are best illustrated by the following diagram tendered in evidence:
[Diagram omitted]
14. The technical qualifications, experience and demeanor of each of the witnesses impress upon the Tribunal that they are competent technical witnesses whose evidence can be reliably accepted.
15. All three witnesses agree that the proper technical term to be used to describe the vessel in question is ``drillship'' or synonymously, ``drill ship''. The drill ship is in a class of drilling rigs capable of drilling holes at sea which are described in the industry as ``mobile
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offshore drilling units'' [``MODU'']. These are not production platforms but their operations are confined to the drilling at sea of exploratory or hydrocarbon production holes. Production does not involve MODUs. Once an exploratory hole is drilled, even if hydrocarbons are discovered in potentially commercial quantities, the hole is cemented up, capped and abandoned by the MODU. The hole may never be used to produce hydrocarbons but, in any event, it cannot become a future production hole without removal of the cement plugging by another drilling operation. So the role of the drill ship is to drill holes. Evidence was also given that drill ships can be used in other sea operations, such as to assist in the recovery of sunken vessels or exploratory drilling for diamonds or offshore metals or minerals. The evidence was that whilst the vessel in question was predominantly used to drill for hydrocarbons, it had been configured for the other operations on occasion. In the use made by the applicant for the year of income in question, the vessel was configured as a drill ship for hydrocarbon exploratory drilling off-shore and that was its relevant use for the period of the year during which the allowances were paid.16. Photographs and plans of the vessel were tendered. These show that the vessel is a ship specially fitted with a derrick, located about mid-ships, beneath which is a water-proof hole (called the ``moon hole'') in the vessel through which the drill passes when drilling. It was explained in evidence, and not in any way contested, that the drill passes through an encasement, called risers, which comprise steel tubing, each about two-thirds of a metre in diameter, which at some stage are connected by telescoping joints (to allow for vertical motion), and a ball joint (to allow for lateral motion) above what is called a ``blow out preventer'' [ ``BOP''] mounted on the sea bed and connected to the risers, and through which the drill passes into the sea bed. The BOP is a safety device to prevent the hydrocarbons escaping uncontrolled through the drill hole and is instrumental in capping the hole upon completion of drilling operations and before plugging. It also enables the drill ship to terminate operations temporarily should it be necessary, such as to avoid a pending storm, and subsequently to return and connect up to the hole to continue operations.
17. The evidence is that the risers and BOP do not hold the drill ship in place. That function is achieved primarily in one of two ways. Where operational depth of the sea permits, the vessel is anchored by use of eight strategically placed anchors (called a ``symmetric eight line'') to ensure minimum drift whilst accommodating lateral movement of rise and fall associated with the tide. In addition, the maintenance of the position of the drill ship over the drilling site is assisted by a series of strategically placed and computer controlled propellers, called ``thrusters'', which are activated to maintain a fixed position relative to the hole. The thrusters can be used exclusively where the sea is too deep for effective anchoring, but, it was suggested, this is relatively costly. The evidence is that the vessel was positioned by anchors during the period in question as the thruster system was not functioning due to computer problems.
18. The Tribunal understands the evidence of all three witnesses to be that technical professionals within the hydrocarbon exploration and production industry, both in Australia and elsewhere, would not refer to rigs, similar to those depicted above, as ``oil rigs''. However, Mr Bell qualified this by saying that in his experience, it is not unusual for the term ``oil rig'' to be used in discussion with non- technical personnel (such as those referred to as ``rough necks'' who work on the rig). Neither Mr Elliott nor Mr Capelle professed experience of such usage.
19. The Tribunal accepts that the term ``oil rig'' is not a term of art ordinarily used within the hydrocarbon exploration industry to refer to either an onshore or offshore drilling unit. It accepts that the usual terms in these circumstances are ``drill ship'', ``rig'' or ``MODU''. Indeed, Mr Capelle and Mr Elliott each made reference to ``the rig'' in evidence when referring to the vessel.
20. The Tribunal also accepts that to describe the vessel as ``a ship'' is not unreasonable because that, essentially, is what it is. Giuliano (supra), when discussing Drill Ships (at page 87) says:
``Drill ships are often constructed from regular ocean-going vessels, which are then fitted with drilling equipment. They are generally self-propelled and use the original propulsion system of the ship.''
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21. The evidence is that the vessel in question is a specially built self-propelled ocean-going vessel designed primarily for Arctic work. The vessel has all the characteristics of a ship, save and except for the rig. Whilst at sea on its way from one place to another the vessel functions as a ship. Whilst in situ and operating, it functions as a drilling rig and it is only at this time that the drilling crew are on board. However, the evidence is that at all times the vessel is under the control and command of, and is the responsibility of, the ship's master.
22. The evidence is that the drill crew, to whom the allowance in question is paid, work a two week on and two week off duration and whilst on duty, work one of three shifts per day, the rig operating around the clock. The crew rotate their shifts. Whilst off duty the crew can relax either in the games room facility where they may watch videos or engage in card games and the like. Food and clean linen are provided as are laundry services for their personal laundry. The crew in this sense is fully found. The sleeping accommodation, of which an example was provided in the video in evidence, consists of either two or four berth cabins which appeared clean and provide a degree of privacy with curtains around each bed but seem fairly cramped. Each occupant had the use of a cupboard for their personal effects whilst on board but, when leaving, were required to remove such personal effects, since the room would then be used by an incoming crew member. The evidence is that only one crew member would occupy a two berth cabin or only two crew would occupy a four berth cabin, at any one time since the others would be on duty. The accommodation provided for separate bathroom facilities. The Tribunal finds that the accommodation provided is designed for temporary occupancy and in this respect is adequate. It was suggested in evidence that the accommodation is somewhat better than that provided on military ships.
The reasons
Is the drill ship an ``oil rig'' for the purpose of s 30(2) of the FBTAA?
23. As mentioned, the term ``oil rig'' is not defined in the FBTAA. It is used in that legislation twice: once in the provision under consideration and again in s 47(7) which, inter alia, provides for an exempt fringe benefit in relation to the cost of providing transport to and from ``an oil rig, or other installation, at sea'' for crew such as the drill crew in this instance, working two weeks on the rig at sea and two weeks on shore. Its use in both instances is therefore consistent and each would imply the same meaning.
24. Notwithstanding that the drill ship is (generically) a ship, it is also recognised, within the industry, as a MODU. It functions as a ship when on a voyage and as a drilling unit when in situ drilling for hydrocarbons. The allowance in question was paid during the time its drill crew were on board. The drill crew do not remain on board when the vessel is on a voyage. The Tribunal therefore must determine whether it is appropriate to describe the vessel as an oil rig when in situ. The term ``drill ship'' accommodates both functions of the vessel and that may be why industry professionals refer to it that way.
25. The term ``oil rig'' is defined in The Macquarie Dictionary as ``the entire structure including all the apparatus needed in drilling for oil''. This suggests that the emphasis is on the word ``rig''. ``Oil'' is also defined in the same reference, in the context of petroleum, which is appropriate, as ``some substance of oily consistency''. ``Petroleum'' is there defined as ``an oily, usu. dark coloured liquid (a form of bitumen or mixture of various hydrocarbons), occurring naturally in various parts of the world, and commonly obtained by boring''.
26. The evidence is that the drill ship was engaged at the relevant time (and usually) in drilling for hydrocarbons. In that respect it is not stretching the language to conclude that the drill ship was then engaged in drilling for oil, a hydrocarbon. Further, the word ``rig'' is defined in H. Whitehead, An A-Z of Offshore Oil and Gas , second edition, Gulf Publishing, Houston, 1983, as:
``An assembly of hole boring equipment used for drilling for oil or gas. The principal components of a rig... comprise a derrick, the draw works, with its drilling line, crown and travelling blocks, and a drilling fluid circulation system, including, stand pipe, flexible hose, mud tanks and pumps. When drilling is in progress a swivel is suspended from the hook beneath the travelling block, which holds the kelly and the drill string in the rotary table and conveys the drilling fluid inside the drill pipe and through the BOP stack into the hole.''
(p 233)
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27. On the evidence, that is a fair description of the drill ship in question's rig installation. That publication goes on to say, at page 234, that ``although a drilling platform may be described as a drilling rig, the term usually refers to a mobile unit of some kind fitted with drilling and control equipment, and other equipment to enable it to remain on location for a considerable time''.
28. It is clear that there is no special commercial meaning attaching to the term ``oil rig''. In this event, and because the FBTAA has seemingly disavowed a technical definition of the term; and the term has no industry recognition amongst its professional operatives, the Tribunal must ascertain the ordinary meaning of the term. In
Markell v Wollaston (1906) 4 CLR 141 O'Connor J said (at 150):
``The general rule of interpretation is that words used in a Statute must be taken to have been used in their ordinary meaning. If it is contended that there is a commercial or other special meaning of the word, there must be evidence before the Court on which it can come to the conclusion that the word is so used, and then it is for the Court to determine whether the legislature has used the word in its ordinary signification or in the special sense.''
29. The Tribunal notes that s 30(2) was introduced into the FBTAA by s 6 of Act No. 216 of 1991, effective from 24 December 1991. It was deemed necessary to overcome the decision of the Federal Court in
Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808, which found that the provisions of s 30(1) did not operate to treat as a fringe benefit an allowance paid to workers on an off-shore mobile oil drilling rig to compensate them for disabilities associated with isolation, accumulating days off and the lack of normal amenities of town or city dwelling. The Court found that as the allowance did not fit within the description of compensation for additional expenses incurred whilst living on the rig away from their usual place of residence, it was not a benefit within s 30 as it was then [now s 30(1)].
30. The Explanatory Memorandum [``EM''] accompanying the Bill, Taxation Laws Amendment Bill (No.3) 1991 which resulted in the amending Act No. 216, begins by suggesting that the Bill ``Ensures that living- away-from-home allowances paid to offshore oil and gas rig workers are treated as fringe benefits''. The EM uses the term ``offshore oil and gas rig workers'' three times in its (just over one page) explanation of the amendment. In the sense that the Tribunal might resort to the EM for assistance, where the objective and purpose underlying the Act is in doubt, as provided by s 15AA and s 15AB(2)(c) of the Acts Interpretation Act 1901, it finds that the EM is of assistance only to conclude that the parliamentary draftsperson did not expand on the term ``oil rig'' to bring about what the parliament believed to be an effective amendment to overcome the problem with s 30 as found by the Federal Court in Atwood Oceanics.
31. The evidence is that the term ``oil rig'' has common usage. The Tribunal accepts that the term is used in the industry by non-technical personnel and on occasion when technical persons are addressing non-technical personnel, such as ``roughnecks''. Both counsel used the term as one which conveys a meaning - that is, they accept that it is not a nonsense. The Macquarie Dictionary defines the term (supra). However, the Tribunal was not led to any technical industry publication which uses it, other than in the title only of a publication entitled ``Oil Rigs: Law and Insurance'', by Michael Summerskill, Stevens and Sons, London, 1979, described by its author as relating to ``some aspects of the law and insurance relating to offshore mobile drilling units''. The evidence is that that publication does not refer elsewhere to ``oil rigs''.
32. Having established that the term ``oil rig'' has a common but not a technical usage, it is necessary to examine whether, in the context of the FBTAA, it would be reasonable to attribute to that term a meaning that would include a MODU such as the drill ship in question. No point is here served by reverting to a technical meaning. The fact that the term was used in a legislative amendment to overcome a particular problem with the FBTAA, which is directly relevant to the matter here under review, is of no particular assistance to the Tribunal if it concludes that the term is too vague to convey the meaning being contended for by the respondent. The respondent submitted that to find otherwise would be tantamount to a nonsense. On the other hand, the applicant submitted that the MODU in question is primarily a ship with a drilling rig and that, since there is no clear technical
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meaning of the term ``oil rig'' the Tribunal is left with no choice but to find that the drill ship in question is not an ``oil rig'' within the meaning of s 30(2)(b) of the FBTAA because it is not within the common understanding of the meaning of that term.33. If the Tribunal is to accept the applicant's submission in this regard then s 30(2) of the FBTAA has only limited application, as was mooted by the applicant, to offshore drilling or production platform units. That argument depends on it being reasonable to distinguish between the five offshore drilling units depicted in Giuliano's Figure 5.16 (supra). The applicant submitted that all but the ``drillship'' there depicted are ``oil rigs'' according to common usage because that term requires an ``oil rig'' to have a drilling platform. The argument proceeds on the basis that the drillship, not having a drilling platform (nor a production platform for that matter), is primarily and principally a ship. The Tribunal does not dismiss this argument lightly, but concludes, on the evidence, that whilst it is reasonable to describe the drill ship as a ``ship'' during a voyage, that does not preclude its being described as an ``oil rig'' whilst in situ carrying out drilling operations. The function of the drill ship at that time is identical to that of the other rigs depicted above. All are oil drilling rigs in a technical and common usage sense and hence ``oil rigs'' in a common, if not technical, usage sense.
34. The Tribunal therefore finds that the term ``oil rig'' as used in s 30(2)(b) of the FBTAA is descriptive of the vessel in question during the period for which the relevant employees carried out the drilling duties which led to the payment of the LAFHA in question.
35. It is therefore unnecessary to consider whether, in any event, the MODU in question is within the description of ``or other petroleum or gas installation'' in s 30(2)(b). However, the Tribunal finds as fact that because the MODU was anchored to the site for a period of about six months, it was installed there. An installation does not imply permanence; it can be temporary. The Macquarie Dictionary defines installation as ``1. something installed. 2. a system of machinery or apparatus placed in position for use'', and install as ``1. to place in position for service or use,...''. The MODU, in relative terms, was temporary during its use in situ - it would always leave that site when its contract was completed. But that does not deny it the quality of being an ``installation''. The Tribunal concludes that when the MODU was drilling for oil or gas hydrocarbons, it was within the statutory description of a ``petroleum or gas installation'' for the purposes of s 30(2)(b) of the FBTAA.
Is the drill crew accommodation on board the MODU ``residential accommodation''?
36. The submission of the applicant in relation to s 30(2)(c) of the FBTAA, that the accommodation on board the MODU was not ``residential accommodation'', cannot be accepted either. The term ``residential accommodation'' is not defined in the FBTAA and therefore its meaning must be considered in the context of s 30(2).
37. ``Residential'' is defined in the Macquarie Dictionary as ``adj 1. of or pertaining to residence or residences. 2. Adapted or used for residence: a residential district''. And ``Residence'' is defined in that dictionary as ``n. 1. the place, esp. the house in which one resides; dwelling place; dwelling. 2. a large house. 3. the act or fact of residing. 4. living or staying in a place of official or other duty''. ``Accommodation'' is defined in that dictionary as ``... 6. lodging, or food and lodging...''. The sleeping, mess and recreational quarters, together with food on board the MODU, provide the drill crew with a place to reside (or lodge) and food. It therefore accommodates (to use the word in a different sense) the concept of ``residential accommodation'' in the s 30(2) of the FBTAA context.
38. To suggest that residential accommodation cannot be temporary nor relatively spartan in the context of accommodation on an offshore rig is unacceptable. Accommodation in those circumstances, according to industry standards, is temporary in that employees' terms of employment ordinarily allow for a short time of continuous work with a similarly short time of onshore leave. Employees reside temporarily on the MODU in accommodation provided by the employer. That accommodation is residential albeit of a temporary nature. The Tribunal finds on the evidence that the temporary accommodation provided on board the MODU is properly described as ``residential accommodation'' and the conditions of s
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30(2)(c) are met in the circumstances of the present case.The Decision
39. For the above reasons the decision under review is affirmed.
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