With the recent end of another Fringe Benefits Tax (‘FBT’) year on 31 March 2025, it is timely to consider a recent decision from the Administrative Appeals Tribunal Australia (‘AATA’): BQKD and Commissioner of Taxation (Taxation) [2024] AATA 1796.
This case involved three brothers, directors of a corporate trustee for a discretionary trust carrying on a business, who were using cars held in the corporate trustee’s name for private purposes. The ATO sought to assess FBT on the value of these non-cash car benefits for the 2016 to 2020 FBT years, arguing that as directors, they were ‘employees’ of the corporate trustee and that the cars were provided in the course of their employment. However, the brothers successfully argued, based on the specific facts and circumstances of their case, that they were not employees and that FBT did not apply to the benefits received.
A key principle of the FBT regime is that a non-cash benefit must be provided to an employee (or an associate, such as a family member) in respect of their employment. An ‘employee’ is broadly defined as an individual entitled to receive salary and wages, which are payments on which a withholding tax obligation exists under the Taxation Administration Act 1953. Traditionally, employment relationships are established through written contracts setting out agreed terms, conditions, entitlements and obligations, with regular or periodic remuneration embedded for specific services provided.
Where it can be demonstrated that a director’s activities are limited to overseeing, preserving or enhancing the value of trust assets—more in the capacity of a beneficiary rather than a day-to-day, operational decision-maker—and where there is no employment contract or pattern of remuneration for director services, it may be possible to argue that the individual is not an ‘employee’. In such cases, non-cash benefits provided (such as car use) may fall outside the scope of FBT.
This AATA decision serves as an important reminder to review comparable arrangements within your private group to ensure FBT is not being unnecessarily paid to the ATO. Careful consideration of all facts and circumstances is critical. It is equally important to assess whether other tax provisions could be triggered even if FBT is not applicable, such as Division 7A where a private company asset is used by a shareholder or associate.
This article was first published in the Winter 2025 of HLB Mann Judd Perth’s Client Alert.