The case emphasises that outcomes depend on how benefits are structured and documented, directly influencing remuneration design, governance practices, and a business’s overall tax risk. The court delivered its decision on 27 March 2026 in SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36, allowing SEPL’s appeal. The ruling is also relevant for trustees, directors, and advisers providing non‑cash benefits to working family members.

Key questions on FBT

SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation is one of the most instructive FBT cases in recent years, tracing a path from the Administrative Appeals Tribunal (AAT), through to a single judge of the Federal Court, and finally to the Full Federal Court.

The litigation pivots on two deceptively simple questions:

• When are working owners of a family trust business ‘employees’ for FBT purposes?
• When is the provision of luxury motor vehicles a ‘fringe benefit’ rather than a benefit conferred by reason of ownership or beneficial entitlement?

The answers, it turns out, are far from straightforward.

The background: A large family business

SEPL Pty Ltd was the corporate trustee of the SFT Trust, a commercially substantial family business. The trust was established in 1987 and following the father’s death in 2009 and the mother’s retirement as director in 2014, control passed to three brothers who became the sole directors and shareholders of SEPL.

The brothers worked long hours in executive roles. Despite this, they received no salary. Instead, they benefited in two ways:

• profits were distributed to each brother’s family trust
• each brother had exclusive personal use of luxury motor vehicles owned by SEPL.

Over 40 such vehicles were held during the relevant FBT years (2016–2020).

Vehicle expenses were debited to their mother’s beneficiary loan account and subsequently cleared through grossed-up trust distributions to cover her resulting income tax liability. There were no board resolutions authorising the vehicles as distributions to the brothers individually, and no amounts were recorded as distributions to their personal beneficiary accounts.

The Commissioner issued amended FBT assessments on the basis that the brothers were employees and the vehicles constituted fringe benefits. SEPL objected, and on disallowance, applied to the AAT for review.

The AAT confirms the brothers were owners, not employees

The AAT set aside the Commissioner’s assessments. Applying what it described as a holistic analysis — informed in part by common law employment principles — the Tribunal concluded the brothers were not employees of SEPL for FBT purposes.

The Tribunal emphasised the absence of written employment contracts, formal remuneration, and board resolutions establishing employment. It also noted that the brothers operated at the apex of the business rather than within a conventional hierarchy. These factors pointed away from a contract of service and towards proprietorial control.

On the second issue — whether the vehicles were provided ‘in respect of’ any employment — the Tribunal also found in favour of SEPL. Drawing on the Full Federal Court’s reasoning in J & G Knowles and Associates Pty Ltd v Commissioner of Taxation [2000] FCA 196, the Tribunal held that the test requires a sufficient or material connection between the benefit and the employment, not merely a causal link. It concluded that the brothers accessed the vehicles as beneficiaries and proprietors of the family trust, reflecting their status as ultimate controllers of the business, rather than as remuneration for services rendered.

Federal Court affirms the FBT assessments

The Commissioner appealed, and Justice O’Sullivan allowed the appeal, setting aside the AAT’s decision and affirming the FBT assessments.

On the employment question, the primary judge held that the Tribunal had erred by importing common law concepts of employment into a statutory framework that provided its own complete definitions. The fringe benefits tax assessment act (FBTAA) was to be read on its own terms. The key provision was section 137, which the Court treated as a deeming mechanism: if a non-cash benefit, had it been paid in cash, would have constituted ‘salary or wages’, then the recipient is to be treated as an employee. Applying this test, the Court found the condition satisfied, noting that a cash payment of equivalent value would have engaged the withholding obligations, and therefore held that the brothers were employees.

On the ‘in respect of’ question, the Court rejected the Tribunal’s focus on the brothers’ subjective belief that they were entitled to the vehicles as beneficiaries. The correct inquiry was objective: was there a sufficient or material connection between the benefit and the employment? Given the brothers’ executive roles, their operational immersion in the business, and the absence of any resolution treating the vehicles as trust distributions, the Court found the connection clear. The appeal was allowed, and the assessments were reinstated.

Full Federal Court restores the AAT outcome

SEPL appealed. A Full Court allowed the appeal and restored the AAT’s outcome.

On the first issue, the Full Court identified four errors in the primary judge’s approach.

• First, the primary judge had focused on the definition of ‘employment’ in section 136(1) rather than the operative concept of ‘employee’. The Full Court explained that ‘employment’ is descriptive of what a person has once they are an employee — it does not expand or lead the inquiry into whether a person qualifies as one.

• Second, section 137 was misconstrued. The Full Court emphasised that section 137 is a confined hypothetical exercise, not a free-standing deeming mechanism. Before section 137 can operate to treat a benefit as ‘salary or wages’, the third condition in section 137(1)(c)(i) must be met: the hypothetical cash payment must constitute salary or wages paid to the person, which, via the definition of ‘salary or wages’ and the reference to section 12-35 of Schedule 1 to the TAA, requires that the cash would have been paid to the person ‘as an employee’. This inquiry necessarily invokes the ordinary, common law, meaning of ‘employee’. The Tribunal was therefore correct to consider common law principles in this context.

• Third, the primary judge treated section 137 as automatically converting every non-cash benefit received by a person performing work into salary or wages. That was an error. The provision does not deem an employment relationship into existence, it merely operates on the concept of salary or wages where all three statutory conditions are independently satisfied.

• Fourth, the primary judge had also relied on section 12-40 of Schedule 1 (relating to payments to company directors), even though the Commissioner had expressly disavowed reliance on that provision before the Tribunal and the primary judge, and it was not part of the questions of law that enlivened the Court’s section 44 jurisdiction. That reliance was not permissible.

Applying the proper statutory framework, the Full Court held that it was open to the Tribunal to conclude that any hypothetical cash payment would have been made to the brothers in their capacities as proprietors and beneficiaries, not as employees, and that the condition in section 137(1)(c)(i) was therefore not satisfied. The Tribunal’s conclusion that the brothers were not employees was not only available but also well-supported by the facts.

On the second issue, the Full Court confirmed the Tribunal’s approach. The ‘in respect of’ test requires a sufficient or material connection between the benefit and the employment; causation alone is insufficient. In this case, the brothers’ access to the vehicles was tied to their proprietorial and beneficial capacities: the mechanism of debiting vehicle costs to the matriarch’s beneficiary account and clearing those debits through grossed-up trust distributions was fundamentally inconsistent with a remuneration arrangement. The Full Court rejected the primary judge’s approach of treating operational involvement in the business as determinative without separately considering the materiality of the employment connection against the competing proprietorial explanation.

The Full Court confirmed that a benefit may be causally referable to multiple sources. The presence of an employment relationship does not compel a finding that the benefit is provided ‘in respect of’ that employment if a sufficiently material explanation lies elsewhere, in this case, in the brothers’ ownership and beneficiary status.

Key takeaways

Common law still matters under the FBTAA. To apply section 137, you must ask whether a hypothetical cash payment would have been made to the person as an employee. That question calls for the ordinary common law meaning of the term. The statute does not fully define it away.

Section 137 has a limited and targeted role and is not a mechanism that converts all non-cash benefits into remuneration. Each of the three conditions in section 137(1) must be independently satisfied, including, critically, that the hypothetical cash equivalent would have been paid to the person as an employee rather than as a proprietor or beneficiary.

The ‘in respect of employment’ test requires substantive connection, not mere proximity. Benefits that arise from ownership, family relationship, or beneficial entitlement may properly sit outside the FBT regime, even where the recipient also performs executive functions in the business.

Documentation matters enormously in family business contexts. The absence of resolutions recording vehicle access as a trust distribution — while ultimately supporting SEPL’s case — created the ambiguity that drove three rounds of litigation. Clear and consistent documentation of the basis on which benefits are provided will always reduce exposure.

Where business is conducted through a company rather than a trust, Division 7A may also be relevant. If a private company provides a non-cash benefit to a shareholder-director, it is necessary to consider whether that benefit constitutes a deemed dividend under section 109CA of the ITAA 1936, noting that Division 7A operates to the exclusion of FBT in relation to loans and forgiven amounts (section 109ZB, ITAA 1936).

How SW can help

The SEPL decision provides welcome clarity on the limits of FBT in family trust structures, but it also highlights how finely balanced these issues can be. Outcomes will continue to turn on facts, characterisation, and documentation. Engaging our experts early will help you navigate complex FBT rules with confidence, protect family business arrangements, minimise FBT exposure, and reduce the risk of prolonged disputes.

Please contact your SW advisor for tailored support from our team.

Contributors

Rahul Sanghani

Natalie Wang

The post SEPL case update: Ownership vs employment implications for fringe benefits tax appeared first on SW Accountants & Advisors.

Christmas celebrations are a wonderful way to end the calendar year, reflect and celebrate with your team. Find out if your Christmas events and gifts may be subject to FBT. While your staff enjoy the party, make sure your festive activities make sure you aware of tax implications.  

Christmas events

Food and drinks provided at Christmas events could fall into the entertainment benefit category which may attract FBT based on several factors. These include:

1. Location of the Party: Whether it is held on-site or off-site.
2. Timing of the Party: If it’s during normal business hours or outside these hours.
3. Cost Per Head: The total expenditure per attendee.
4. Types of Attendees: Whether only employees, clients, or family members are present.

Parties held on business premises during ordinary hours of work

If your Christmas party is held on the business premises during a normal working day, no FBT is payable for food and drinks. This constitutes an exempt property benefit, rendering the entire cost of the party FBT exempt.

However, this concession applies exclusively to food and drink provided to employees. If food and drinks are provided to an employee’s associate (like family members), this portion will not be exempt and may attract FBT.

This exemption can only apply to property consumed on premises and other types of benefits may be subject to FBT (e.g. it will not apply to the cost of performers).

Parties not held on business premises or outside ordinary hours of work

For parties held off-site (such as in a restaurant) or outside regular business hours, the minor benefit exemption might apply.

To be eligible for this exemption, broadly the cost per person (inclusive of GST) must be less than $300, and the benefit should be provided on an irregular and infrequent basis.

Income tax-exempt entities – special considerations

Entities like government departments, universities, and some schools, which are exempt from Income Tax, face more stringent FBT rules for entertainment as the exemptions described above (i.e. exempt property benefit and minor benefits exemptions) are not available. For these organisations, the entire cost of food and drinks will attract FBT unless a particular exclusion applies such as:

• it qualifies as sustenance
• light refreshments that is incidental to the provision of entertainment to outsiders or
• it is provided as part of your hospitality business.

In addition, income tax exempt entities may utilise other concessions such as the 50/50 method to reduce the overall FBT cost.

Restrictions on concessions for tax exempt body entertainment benefits apply only to meal entertainment. Therefore, it becomes more important to determine which benefits should be considered entertainment, and/or what proportions may be subject to reportable fringe benefit rules (i.e. reportable on employee Income Statements).

Christmas gifts

For non-entertainment benefits like gifts or hampers, the ATO has confirmed that these are generally treated as separate non-associated benefits under the minor benefits exemption rule. For example, an employer can provide the following benefits and still remain within the bounds of the minor benefits exemption:

• food and drink at a Christmas Party costing $275 per person and
• a gift hamper costing $100 per person.

This seems to be a special case for Christmas gifts and events, where the minor benefits exemption and its $300 threshold can be applied separately to the gift without also considering the value of associated Christmas events.

This special treatment does not apply to the Christmas parties which could be made up of several distinct benefits in its own right (e.g. dinner and a social event or performance), These distinct benefits could be considered similar or associate benefits, and their combined costs must be considered collectively. If the combined costs are considered significant, then the minor benefits exemption is not likely to apply, Take, for instance, the expenses of a Christmas party. If the cost for food and drinks per person is $300, and the additional entertainment also amounts to $300 per head, the aggregate expense of $600 per person should be evaluated. Given this combined figure, it’s not likely that the minor benefits exemption would apply, as the total cost for these associated benefits is significant.

The minor benefits exemption is a practical way for employers to provide certain benefits without incurring FBT. To maximise this exemption, make sure you carefully plan and document the costs and frequency of these benefits to avoid doubling the cost of an event.

Get in touch with us

For personalised advice on the FBT implications for Christmas parties and gifts please contact your SW advisor.

We can also assist employers saving time and streamlining your FBT return process using our FBT software, CTSplus FBT. For more information on CTSplus FBT, please send us an email.

Contributors

Rahul Sanghani

Sharon Lee

The post FBT implications for Christmas parties & gifts appeared first on SW Accountants & Advisors.

While the earlier legislative instruments focused on travel benefits, these new instruments broaden the scope to include other areas such as Living-Away-From-Home Allowances (LAFHA) and private use of vehicles other than cars. 

The ATO is progressively making it easier to comply with FBT obligations by offering more flexible record-keeping options. Employers now have a wider array of records they can rely on, which can be particularly beneficial for those who already maintain such records for other operational or compliance purposes. This not only simplifies the administrative process but also reduces the risk of non-compliance due to incomplete or missing employee declarations. 

Summary of key points from the five additional Legislative Instruments 

• LI 2023/D18 Temporary Accommodation Relating to Relocation: Employers can use employment contracts and relocation agreements as alternative records. This would be useful for organisations with frequent employee transfers. 
• LI 2023/D19 Otherwise Deductible Benefits: This instrument provides guidelines for using alternative records for benefits that would otherwise be deductible to the employee. Employers can now use corporate credit card statements or expense management software as alternative records, reducing administrative overhead. 
• LI 2023/D20 Maintaining an Australian Home: This instrument focuses on the alternative records that can be used for benefits related to maintaining an Australian home while an employee is living away for work. Payroll records and housing lease agreements can now be used as alternative records. 
• LI 2023/D21 Fly-In Fly-Out and Drive-In Drive-Out Employees: This instrument allows employers to use employment contracts that specify an employee’s normal residence and employment details as alternative records. This is especially beneficial for industries like mining and construction, where such work arrangements are common. 
• LI 2023/D22 Private Use of Vehicles Other Than Cars: This instrument specifies that employers can use alternative records like mobile apps that record travel distances via GPS and email correspondences to substantiate the usage of vehicles other than cars. This is a significant shift from traditional methods that often required manual logbooks, making the process more efficient and accurate. 

These legislative changes will take effect from 1 April 2024, and employers should prepare in advance to simplify their record-keeping. 

These new record-keeping options offer more flexibility and convenience for employers who already maintain such records for other operational or compliance purposes. They also reduce the risk of non-compliance due to incomplete or missing employee declarations.  

To simplify record-keeping in accordance with the new FBT legislative instruments, employers should undertake an assessment of their existing corporate records. This may involve: 

• reviewing the requirements outlined in the legislative instruments, 
• conducting an inventory of all current records, 

• cross-reference this inventory of current records with the types of records now considered adequate,  
• update internal record-keeping policies and employee training for any gaps identified, 
• run a test audit to validate compliance and maintain documentation of the assessment process for future reference. 

How SW can help

If you need any assistance in understanding how you can simplify your record-keeping in light of these draft legislative instruments, please contact your SW advisor Stephen O’Flynn or Rahul Sanghani. 

Contributor

Rahul Sanghani

The post Simplification in FBT Record-Keeping | Update appeared first on SW Accountants & Advisors.

• New and recent developments
• FBT recap and hot topics – reducing FBT on cars and car parking due to COVID-19
• Global mobility and impacts of COVID-19 on tax residency and employee tax obligation
• Payroll tax and COVID-19 concessions
• The rise in popularity and attractiveness of employee share and incentive plans (Corporate session only)
• Highlighting not-for-profit rebates and exemptions (NFP & Government session only)

Corporate session

Nor-for-profit & Government session

Contact us

The post Employment Taxes update 2021 appeared first on SW Accountants & Advisors.

The seminar will discuss the latest tax news and changes and provide an update on the following:

• What’s new and recent developments
• FBT recap
• Superannuation & Amnesty update
• Global mobility & Tax residency insights
• Employee Share Scheme trends
• SRO / OSR payroll tax activity
• Other employment tax issues

Who should attend?

• Tax managers and their support staff

• Human resource management/remuneration and benefits managers

• Other staff interested in employer tax compliance, such as CFOs, financial controllers, CEOs and directors. 

Presenters

Stephen O’Flynn – Partner
Sam Morris – Partner
Tim Hogan-Doran – Partner
Helen Wicker – Partner
Justin Batticciotto  – Associate Director
David Wilson – Associate Director
Rahul Sanghani – Senior Manager

Event details 

There will be five seminars hosted over the duration of two weeks, all of which are free to attend. If you would like to register for any of the following events, or know of someone who may be interested, please register using the links below.

Brisbane

Employment Tax Update (Co-hosted with Chartered Accountants Australia and New Zealand)
Date: Tuesday, 10 March 2020
Time: 12pm – 2pm
Venue: Brisbane Marriott Hotel, 515 Queen Street, Brisbane QLD 4000

Sydney

Employment Tax Update *NOW FULL
Date: Wednesday, 11 March 2020
Time: 8am – 10am
Venue: ShineWing Australia, Level 8, 167 Macquarie Street, Sydney NSW 2000

Melbourne

Employment Taxes Update: Corporate *NOW FULL
Date: Tuesday, 17 March 2020
Time: 8am – 10am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

Employment Taxes Update: Not-for-profit
Date: Wednesday, 18 March 2020
Time: 8:30am – 10:30am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

Employment Taxes Update: Government
Date: Thursday, 19 March 2020
Time: 8:30am – 10:30am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

For more information about these events, or if you have any queries, please contact the ShineWing Australia Marketing team via marketing@sw-au.com

We look forward to your attendance!

The post Employment Taxes Update 2020 appeared first on SW Accountants & Advisors.