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No FBT on Luxury Cars Provided to Directors: AAT Decision Overview

Luxury Cars FBT
 

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The Administrative Appeals Tribunal (AAT) has overturned FBT assessments issued by the Commissioner to a company regarding non-cash benefits provided to its directors. The AAT found that the directors were not employees of the taxpayer and that even if they were, the benefits were not related to their employment.


Background

The taxpayer was the corporate trustee of a discretionary family trust, with three brothers serving as directors and eligible beneficiaries. The trust, initially established by their parents, allowed wide discretion in distributions to beneficiaries, including immediate family and extended family members. The trust deed permitted the trustee to allow beneficiaries to use trust property on terms deemed fit.


As the business grew, it expanded into a large conglomerate with numerous entities. The brothers, also directors and shareholders of these entities, managed the family business following their father's death and their mother's retirement as director. There were no written employment contracts or resolutions indicating employment agreements for the directors, although the taxpayer made employer contributions to their superannuation accounts and claimed tax deductions for these contributions.


The Issue

The primary issue before the AAT was whether the three directors were employees of the taxpayer under FBT legislation and if the benefits (luxury motor vehicles) were provided in respect of their employment. The definition of a fringe benefit under s 136(1) of the Fringe Benefits Tax Assessment Act 1986 requires the benefit to be provided by an employer to an employee in respect of employment.


The directors used the vehicles for both business and personal purposes, with expenses for personal use debited against their mother's account, another eligible beneficiary. The Commissioner argued that the taxpayer was liable for FBT on the non-cash benefits provided to the directors and included the private use of cars in amended FBT assessments for 2016 to 2020.


Taxpayer’s Argument

The taxpayer contended that it was not liable for FBT on the vehicles, arguing that the directors were not employees and had never been paid wages or salaries. They claimed the directors acted in their capacity as directors or beneficiaries, not as employees. The taxpayer also referenced J&G Knowles & Associates Pty Ltd v FC of T, where directors were found to be acting as beneficiaries rather than employees.


Even if the directors were considered employees, the taxpayer argued that the benefits were provided in their capacity as directors or beneficiaries, as allowed by the trust deed, not in respect of their employment.


Commissioner’s Argument

The Commissioner maintained that only the three directors had access to the vehicles because they were directors, distinguishing this case from Knowles due to the presence of many other eligible beneficiaries apart from the directors.


AAT Decision

The AAT accepted the taxpayer's evidence and set aside the objection decision. The Tribunal noted that while superannuation payments indicated a possible employment relationship, other evidence suggested otherwise. Key points included the absence of a board resolution to establish employment contracts, the directors' control over the company without integration into its hierarchy, and the fact that they sat at the apex of a wider network of family businesses.


Deputy President McCabe stated that even if the directors were employees, the benefits were not connected to their employment. The motivation for claiming the benefits was their belief in entitlement as beneficiaries, similar to the directors in Knowles. The benefits were not rewards for their work as directors or employees but were claimed due to their status as beneficiaries.


Conclusion

The AAT's decision highlights the complexities in determining employment relationships and the provision of benefits within family trusts. The ruling underscores the importance of clear documentation and the distinction between roles as directors, beneficiaries, and employees. This case sets a precedent for similar disputes, emphasizing that benefits provided under trust deeds may not necessarily attract FBT if they are not linked to employment.

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