The decision is particularly relevant for trustees, directors and advisers providing non cash benefits to working family members.

Key issues

The case raised two central issues:

1. Whether the working owners of the SFT Trust qualified as “employees” for FBT purposes; and
2. Whether the provision of motor vehicles for personal use by those owners were benefits provided “in respect of” employment.

Key takeaways

This decision reinforces several important principles for private groups, including:

• Substance over form remains critical in characterising relationships for FBT purposes.
• The definition of “employee” is not expanded for FBT purposes merely because individuals work within a business they control.
• Trust distributions and beneficiary arrangements are not automatically deemed as employment-related benefits.
• The “in respect of employment” test requires a genuine connection between the benefit and employment (rather than a factual connection to business activities).

The decision provides greater certainty for family-owned and closely held business structures that provide non-cash benefits to working family members. However, each arrangement must be carefully assessed on a case-by-case basis based on its legal and commercial substance. Businesses operating through trusts should ensure their governance, documentation and remuneration structures align with the underlying legal character of relationships within the group.

Background

• SEPL Pty Ltd (SEPL) was the corporate trustee of the SFT Trust, a discretionary trust that conducted a family-run business.
• Under the terms of the SFT Trust deed, three brothers were the beneficiaries and controllers of the trust. The three brothers were also directors and shareholders of the trustee company.
• Whilst the brothers worked in the business, they were not paid a salary and there were no employment contracts between the brothers and the SFT Trust.
• The SFT Trust owned luxury motor vehicles which the brothers used for both business and personal use.
• The Commissioner of Taxation (Commissioner) assessed FBT on the personal use of the motor vehicles.

SEPL objected to the Commissioner’s assessment, and on disallowance, applied to the Administrative Appeals Tribunal (Tribunal) for review. The Commissioner’s assessment was set aside by the Tribunal, relying on common law concepts of employment to conclude that the brothers were not “employees” of the SFT Trust and therefore, the “benefits” (i.e. their personal use of the vehicles) were not benefits provided “in respect of” their employment. Relevant factors included:

• The absence of employment contracts or remuneration in the form of wages;
• The lack of typical employment features such as leave entitlements; and
• The fact that the brothers operated the business as owners, not subordinates.

The Commissioner successfully appealed the Tribunal’s decision to a single judge of the Federal Court, where it was held that the brothers were “employees” of the SFT Trust based on statutory definitions and deeming provisions in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and that their use of the motor vehicles were benefits paid “in respect of” their employment in the SFT Trust’s business.

SEPL appealed the single judge’s decision to the Full Federal Court, who delivered their judgment on 27 March 2026.

Full Federal Court Decision

The Full Court dismissed the Commissioner’s appeal, finding that the brothers were not “employees” of the SFT Trust for the purpose of the FBT provisions and the “benefit”, being the personal use of motor vehicles owned by the SFT Trust, arose because of the brothers’ relationship to the trust and not because of any relationship of employment.

The Full Court endorsed the Tribunal’s common law approach to determining whether a person is an “employees” in the context, focusing on the substance of the relationship rather than formal labels. Further, the Full Court accepted the Tribunal’s finding that any hypothetical cash payment (in lieu of the benefits being provided) would have been made to the relevant brother not “as an employee” within the meaning of s 12-35 of Schedule 1 of the FBTAA but in his capacity as a proprietor, controller, and discretionary beneficiary of the trust. That is because the hypothetical payment would not have been made to the brother “as an employee”.

The Court rejected the Commissioner’s reliance on, and the primary judge’s treatment of, s 137(1) of the FBTAA as a deeming provisions that converts every non-cash benefit provided to a person performing work into “salary or wages”. The Court held that the primary judge incorrectly treated s 137 as a mechanism to expanded the category of “employee” by deeming persons performing functions relevant to a company to be employees whenever they received non-cash benefits. The Full Court held that this provision relates to “salary or wages” but does not itself create or deem an employment relationship, concluding that benefits received in a different capacity, such as that of a beneficiary or proprietor, will not satisfy this provision.

If you’re unsure how this decision may affect your arrangements, please contact Craig Finlayson, Principal or Chiara Whelan, Lawyer.

The information provided in this article is general in nature and cannot be relied on as legal advice, nor does it create an engagement. Please contact one our lawyers listed above for advice about your specific situation.