This article highlights how the upcoming FBT lodgement period is a timely reminder for family businesses to review benefits provided to directors and relatives, drawing on a recent Full Federal Court case and the ATO’s continued focus on informal arrangements.
The Background
Three brothers run a large and diverse enterprise spanning petrol stations, convenience stores, fast food outlets, tobacco shops, and gift stores. They act as shareholders, directors, and principal decision-makers-holding appointor powers under the trust deed-and work long hours in executive-type roles without receiving formal salaries or wages. Instead, profits and benefits are dictributed through a family discretionary trust (SFT Trust), managed by a corporate trustee (SELP Pty Ltd), with the brothers and their family members as beneficiaries
The business gave them exclusive use of more than 40 luxury and high-performance vehicles, including brands such as Bentleys and Ferraris, for bot business and personal purposes. Expenses relating to personal use were charged to the matriarch’s beneficiary account and later offset through trust distributions, reflecting a structure aligned with beneficiary entitlements rather than employment income.
The ATO imposed FBT on the private use portion of these vehicle benefits, contending that they constituted fringe benefits provided to the brothers in their capacity as “employees” in relation to their work.
What the Court Decide
The Administrative Appeals Tribunal (AAT) initially decided in favor of the taxpayer in Re BQKD and Commissioner of Taxation [2024] AATA 1796. It concluded that the brothers did not qualify as “employees” for FBT purposes and that, even on a hypothetical basis, the vehicle benefits were not provided “in respect of” any employment. Instead, the benefits were considered to arise from their roles as beneficiaries, business owners, and controlling family members.
The Commissioner then appealed to a single judge of the Federal Court, who in June 2025 (Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581) upheld the appeal. Justice O’Sullivan determined that the brothers fell within the broad definition of employees under the FBT rules-including through the deeming provision in section 137 of the Fringe Benefits Tax Assessment Act 1986 (Cth)-and that the benefits were provided in connection with their employment.
The taxpayer subsequently appealed to the Full Federal Court. On 27 March 2026, in SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36 (Perry, O’Callaghan and Thawley JJ), the Full Court unanimously allowed the appeal, effectively reinstating the AAT’s original decision.
Key findings:
- Employee status: The AAT was entitled to find that the brothers did not qualify as “employees” for FBT purposes. The meanings of “employee” and “salary or wages” ultimately rely on common law principles of employment. In reaching its conclusion, the AAT appropriately considered factors such as the lack of formal employment contracts, the absence of wages and leave entitlements, the existence of hired managers handling day-to-day operations, and the fact that the brothers’ authority stemmed from their ownership and governance roles rather than a conventional employment relationship.
- “In respect of” employment: Even if it were assumed, on a hypothetical basis, that the brothers were employees, the AAT was entitled to conclude that there was no adequate connection between the benefits and any employment relationship. The use of vehicles was not provided as a replacement for salary or wages. In assessing the evidence, the AAT appropriately considered alternative explanations and determined that the benefits primarily stemmed from family and trust relationships rather than from employment.
Why This Matters for Your Business
The case highlights the ATO’s continued scrutiny of individuals who operate in multiple capacities—such as directors who are also beneficiaries and actively involved in trust-based businesses. However, the Full Court’s decision sets out some important limits:
- Benefits provided informally to working family members within discretionary trusts do not automatically give rise to FBT.
- The underlying substance and quality of documentation are critical—particularly how benefits are structured, funded, and recorded (for example, through trust distributions rather than as remuneration).
- Traditional common law principles of employment still play a key role in interpreting FBT definitions.
- Holding multiple roles does not necessarily result in FBT exposure where the benefits are more appropriately characterised as arising from a beneficiary relationship.
Family-run businesses should remain vigilant. The ATO may continue to closely examine comparable arrangements, especially when benefits seem to replace formal remuneration or are poorly documented. While factors such as employment relationship, they were not determinative in this case.
Practical Steps to Protect Your Business
Don’t wait for an ATO audit—review your arrangements now:
- Assess FBT correctly: Use statutory formulas or the operating cost method for cars. Employee contributions, such as reimbursing personal use, can reduce or eliminate the liability.
- Consider exemptions and concessions: Minor benefits under $300 or salary packaging for electric vehicles may provide relief.
- Check for related issues: Be mindful of potential Division 7A loans or deemed dividends when benefits are provided through private companies.
- Plan proactively: With the ATO’s focus increasing, it’s wise to model different scenarios to minimise tax while preserving commercial benefits.
Keep in mind that unreported FBT liabilities can lead to penalties and interest.
The SEPL case ultimately supports the taxpayer, showing that FBT does not automatically apply to all benefits given to working owners in family trust structures. However, outcomes depend heavily on the specific facts and evidence in each case.
If your business provides vehicles, phones, travel, or other perks to family members actively involved in operations—especially where formal salaries are not paid—now is an ideal time to review your arrangements. Professional support can help assess structures, run FBT calculations or risk assessments, and implement practical solutions to protect profits while maintaining flexibility. The rules are highly fact-specific and continue to evolve, so tailored professional advice is essential.
If your family business provides vehicles or other benefits to working owners, now is the right time to review your arrangements.
Our accounting team can help assess your FBT exposure and ensure your structures are compliant, defensible, and commercially sound ahead of lodgement deadlines.
