A Wake-Up Call for Family Businesses on Fringe Benefits Tax
- Wis AU
- 17 hours ago
- 4 min read
With the Fringe Benefits Tax (FBT) lodgment season approaching, family businesses should take the time to review the benefits they provide to working directors and family members. A notable case involving luxury vehicles supplied to three brothers operating a large business through a discretionary trust illustrates both the complexity and risks associated with informal arrangements. Although the case initially appeared to broaden the scope of FBT, the most recent decision by the Full Federal Court provides reassurance that benefits provided to working owners do not automatically fall within the FBT regime.
What may be viewed as simple “owner entitlements” or beneficiary perks can still attract attention from the Australian Taxation Office (ATO). The courts have highlighted that the key considerations lie in the substance of the arrangement, the quality of documentation, and the capacity in which the benefits are provided.
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The Background
The case concerns three brothers who operate a substantial business spanning petrol stations, convenience stores, fast food outlets, tobacco retailers, and gift shops. They act as shareholders, directors, and primary decision-makers, holding powers as appointors under the trust deed, and work long hours in executive-type roles without receiving formal salaries or wages. Instead, profits and benefits are distributed through a family discretionary trust (SFT Trust), with SEPL Pty Ltd acting as the corporate trustee. The brothers and their family members are beneficiaries of the trust.
The business granted them exclusive use of more than 40 luxury and high-performance vehicles, including brands such as Bentleys and Ferraris, for both business and personal purposes. Expenses related to personal use were charged to the matriarch’s beneficiary account and subsequently cleared through trust distributions, reflecting a treatment consistent with beneficiary entitlements rather than employment remuneration.
The ATO assessed FBT on the private use component of these vehicles, arguing that they constituted fringe benefits provided
What the Court Decided
The Administrative Appeals Tribunal (AAT) initially ruled in favour of the taxpayer in Re BQKD and Commissioner of Taxation [2024] AATA 1796. It determined that the brothers were not employees for FBT purposes and that, even on a hypothetical basis, the vehicle benefits were not provided “in respect of” employment. Instead, the benefits were connected to their roles as beneficiaries, owners, and controlling family members.
The Commissioner appealed to a single judge of the Federal Court. In June 2025 (Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581), Justice O’Sullivan allowed the appeal, taking the view that the brothers fell within the broad statutory definition of “employee” under the FBT rules (including the deeming provision in s 137 of the FBTAA) and that the benefits were linked to their employment.
The taxpayer then appealed to the Full Federal Court. On 27 March 2026 (SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36), the Full Court unanimously allowed the appeal and effectively reinstated the AAT’s original decision.
Key Findings
Employee status: The Court confirmed that it was open to the AAT to conclude that the brothers were not employees for FBT purposes. The definitions of “employee” and “salary or wages” ultimately rely on common law principles. Relevant factors included the absence of employment contracts, no payment of wages or employee benefits, the existence of separate management staff, and the fact that the brothers’ authority arose from their ownership and governance roles rather than an employment relationship.
“In respect of” employment: Even if the brothers were treated as employees hypothetically, the AAT was entitled to find that there was no sufficient connection between the benefits and any employment relationship. The vehicle access was not a substitute for salary or wages. Instead, the benefits were primarily attributable to family and trust relationships rather than employment.
Why This Matters for Your Business
This case highlights the ATO’s continued focus on individuals who hold dual roles, such as directors who are also beneficiaries and active participants in trust structures. At the same time, the Full Court’s reasoning provides important clarification:
Informal benefits provided to working family members within discretionary trusts are not automatically subject to FBT.
The substance of the arrangement and supporting documentation are critical, including how benefits are structured, funded, and recorded (for example, via trust distributions rather than remuneration).
Common law employment concepts remain central when interpreting FBT provisions.
Holding multiple roles does not necessarily trigger FBT where the dominant characterisation is as a beneficiary.
Nevertheless, family businesses should proceed carefully. The ATO may continue to examine similar arrangements, particularly where benefits resemble remuneration substitutes or where documentation is inadequate. Factors such as superannuation contributions or executive titles may support an employee characterisation, although they were not determinative in this case.
Practical Steps to Protect Your Business
Businesses should proactively review their arrangements rather than waiting for an audit:
Ensure clear documentation: where a benefit represents a trust distribution, record it appropriately through trustee resolutions; where it relates to work duties, consider FBT treatment or document why it falls outside the regime.
Apply FBT rules correctly, including using statutory or operating cost methods for vehicle benefits. Employee contributions may reduce or eliminate FBT liability.
Consider available exemptions or concessions, such as minor benefits under $300 or salary packaging arrangements for electric vehicles.
Review related tax risks, including potential Division 7A implications or deemed dividends where private companies are involved.
Plan proactively by modelling different scenarios to manage tax exposure while maintaining commercial flexibility.
Failure to report FBT liabilities may expose businesses to penalties and interest if identified by the ATO.
Overall, the SEPL case is favourable to taxpayers and confirms that FBT does not apply to every benefit provided to working owners in family trust structures. However, each case depends on its specific facts and supporting evidence.
If your business provides benefits such as vehicles, phones, or travel to family members involved in operations—particularly where no formal salary is paid—it is advisable to review these arrangements. Professional advice can assist in assessing risks, performing FBT calculations, and implementing appropriate solutions.
Given that this area of law is highly fact-dependent and continues to develop, tailored professional advice remains essential.
Source of information: Your Knowledge April 2026 - What the New Div 296 Tax Means for Individuals with Large Super Balances.
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