As Fringe Benefits Tax (FBT) season approaches, family businesses should take a closer look at how they provide benefits to working directors and family members. A recent court case has drawn significant attention in this area—not only because of its facts, but also because of its journey through three levels of review and what it ultimately means for closely held structures.
For many family-run businesses, the line between “ownership benefits” and “employment benefits” is often blurred. This case serves as a timely reminder that how benefits are characterised—and documented—can make all the difference.
A business built on overlapping roles
The case involved three brothers who operated a large business empire through a discretionary trust. The group’s activities spanned petrol stations, convenience stores, fast food outlets, and more. The brothers were deeply involved in the business, acting as directors, decision-makers, and controllers of the trust.
However, unlike traditional executives, they did not receive formal salaries or wages. Instead, profits and economic benefits flowed through the family trust, of which they were beneficiaries.
Among the benefits provided was access to a fleet of over 40 luxury and high-performance vehicles, used for both business and personal purposes. Importantly, the private use component was not treated as salary. Instead, related costs were allocated to a beneficiary account and later offset through trust distributions.
From a commercial perspective, this type of arrangement is not unusual in family groups. But from a tax perspective, it raised a critical question: were these benefits provided as part of employment, or as part of ownership?
The ATO’s position
The Australian Taxation Office (ATO) took the view that the private use of the vehicles gave rise to FBT liabilities. Their argument was straightforward: the brothers were effectively employees, and the benefits were provided in respect of their work.
If accepted, this would significantly broaden the application of FBT in family business contexts—especially where individuals perform active roles without formal remuneration.
Three decisions, three different outcomes
What makes this case particularly noteworthy is its progression through three levels of decision-making, each reaching a different conclusion.
1. Administrative Appeals Tribunal (AAT)
The AAT initially ruled in favour of the taxpayer. It found that the brothers were not “employees” for FBT purposes. Even if they were treated as employees on a hypothetical basis, the Tribunal concluded that the vehicle benefits were not provided “in respect of” employment. Instead, they arose from the brothers’ roles as beneficiaries and controllers of the trust.
2. Federal Court (single judge)
The Commissioner appealed, and the Federal Court overturned the AAT’s decision. The judge took a broader view of the FBT rules, finding that the brothers could be treated as employees under the legislation. On that basis, the vehicle benefits were considered to be connected to their employment, and therefore subject to FBT.
This decision caused concern among advisors and business owners, as it suggested a potentially wider reach of FBT into family business arrangements.
3. Full Federal Court (final decision)
The matter was then appealed again—this time to the Full Federal Court. In March 2026, the Full Court unanimously allowed the taxpayer’s appeal and effectively restored the AAT’s original decision.
The Full Court confirmed two key points:
- It was open to conclude that the brothers were not employees in the traditional legal sense, despite their active involvement in the business.
- Even if they were employees, there was not a sufficient connection between the benefits and any employment relationship.
This final decision provides an important degree of reassurance for family businesses.
Key takeaways: it’s about substance, not labels
One of the strongest messages from the case is that substance matters more than labels.
The courts looked beyond titles such as “director” and focused on the actual nature of the relationship. Factors such as the absence of employment contracts, lack of wages and leave entitlements, and the existence of separate operational managers all supported the conclusion that the brothers were not employees in the ordinary sense.
Equally important was the purpose of the benefits. The vehicles were not provided as a substitute for salary, but rather as part of the broader economic entitlements flowing from the trust structure.
For family businesses, this reinforces the idea that simply holding multiple roles does not automatically trigger FBT. The key is identifying which role is dominant in a given context.
Why documentation is critical
While the outcome was favourable to the taxpayer, it should not be seen as a green light for informal arrangements.
A major factor in the case was how the benefits were treated and recorded. The use of beneficiary accounts and trust distributions helped support the argument that the benefits were linked to ownership, not employment.
Without this level of documentation, the outcome could have been very different.
In practice, this means:
- Clearly recording trust distributions through trustee resolutions
- Ensuring accounting treatment aligns with the intended character of the benefit
- Avoiding inconsistent or mixed treatment across different records
Practical implications for family businesses
The case highlights several practical points that business owners should consider as part of their FBT review:
1. Not all benefits are subject to FBT
Benefits provided to family members in discretionary trusts are not automatically caught. The connection to employment must be clearly established.
2. Review dual-capacity individuals
Where individuals act as both beneficiaries and active workers, their arrangements deserve closer scrutiny. These are the situations most likely to attract ATO attention.
3. Consider how benefits are structured
If a benefit is effectively a substitute for salary, FBT risk increases. If it is genuinely linked to ownership or trust entitlements, the position may be stronger.
4. Don’t ignore other tax risks
Arrangements involving private companies and trusts may also raise issues under other provisions, such as Division 7A.
5. Be prepared for scrutiny
The ATO continues to focus on closely held groups, particularly where there is a mismatch between economic benefits and reported income.
A timely reminder before FBT season
As FBT lodgement deadlines approach, this case is a useful reminder that the rules are not always straightforward—but they are also not as broad as sometimes feared.
The final outcome confirms that FBT does not automatically apply to every benefit provided within a family business structure. However, it also reinforces that each arrangement will be judged on its specific facts, supported by evidence and documentation.
For businesses providing vehicles, expense payments, or other perks to family members—especially in the absence of formal salaries—now is the time to review those arrangements carefully.
Getting it right upfront is far easier than defending it later.
Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
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By Yvonne Shao @ Pitt Martin Tax
