If your family business provides vehicles, travel, or other perks to family members who work in the business, a landmark March 2026 court decision just changed the landscape. A family trust won a major Fringe Benefits Tax (FBT) dispute against the Australian Taxation Office — and the judgment is a masterclass in why documentation matters more than structure.
Here is what happened, what it means for your situation, and what to do before the ATO comes looking.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax employers pay when they provide non-cash benefits to employees. Think company cars, travel allowances, meals, and accommodation. The FBT rate for the 2025–26 year (ending 31 March 2026) is 47%.
For company cars specifically, the taxable value is calculated using a flat 20% statutory rate applied to the car's opening value. That value is then grossed up and taxed at the FBT rate. As a rough guide: a $50,000 car attracts roughly $9,777 in FBT per year if used entirely for private purposes.
Here is the important part: FBT only applies if the person receiving the benefit is an employee. Benefits provided to trust beneficiaries — in their capacity as beneficiaries, not employees — sit outside the FBT net entirely.
What Happened in the SEPL Case
SEPL Pty Ltd as Trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36 was decided by the Full Federal Court on 27 March 2026.
The setup: A family discretionary trust (the SFT Trust) operated a large portfolio of petrol stations, convenience stores, fast-food outlets, and retail businesses. Three brothers were the driving force behind the whole operation. They made decisions, directed staff, and kept the business running.
But here is what they did not have: employment contracts, written salary arrangements, formal board resolutions establishing them as employees, leave entitlements, or superannuation contributions made in their name as employees.
Instead, the trust gave them access to over 40 luxury vehicles — Bentleys, McLarens, Ferraris — for both business and personal use. The cost of that personal use was debited to their beneficiary accounts and cleared through trust distributions.
The ATO assessed FBT on the value of that private vehicle use, arguing the brothers were employees receiving a fringe benefit.
The court journey:
| Court | Outcome |
|---|---|
| Administrative Appeals Tribunal (10 May 2024) | Taxpayer wins |
| Single Federal Court Judge — O'Sullivan J (5 June 2025) | ATO wins |
| Full Federal Court — Perry, O'Callaghan and Thawley JJ (27 March 2026) | Taxpayer wins unanimously |
Why the brothers won: The Full Court found the brothers were not employees. They had no contracts, no wages, no entitlements — nothing that would ordinarily characterise an employment relationship. They ran the business the way owners do: through control, discretion, and ownership. Professional managers handled the day-to-day operations.
The ATO argued that because the brothers were directors of SEPL, they were "deemed" employees for FBT purposes. The Court rejected this outright — being a director does not automatically make someone an employee. The Court found their work was "the performance of duties of a directorship," not work performed under a contract of service. These are legally distinct concepts.
The Court also found that even if the brothers had been employees, the vehicle benefits were not provided "in respect of" their employment. Instead, the Court concluded the benefits were provided because of the brothers' roles as the "minds and management" of the group and as beneficiaries of the trust — not as a reward or consideration for any employment services. The motivation behind the benefit, not just the title of the recipient, is what determines whether FBT applies. The personal use costs were managed through beneficiary accounts and trust distributions — a beneficiary mechanism, not an employment remuneration mechanism.
It is also worth noting the structural dimension: SEPL Pty Ltd (a company) was technically the employer entity, but the vehicles were provided to the brothers in their capacity as beneficiaries of the discretionary trust — not as employees of the company. The court examined the inter-relationship between the company and the trust and found that the brothers, as the ultimate beneficial owners of the structure, were not receiving a benefit in their capacity as employees of that structure.
Both limbs of the FBT test failed. The ATO lost.
This Is Not a Green Light to Skip FBT
Before you forward this article to every family trust client as good news — stop.
The SEPL decision is a case about substance. The brothers won because their arrangements genuinely reflected their status as proprietors. The documentation (or in this case, the deliberate absence of employment documentation) matched the substance of what was actually happening.
If your family members work in the business, receive cars or other perks, and are formally set up as employees with wages and contracts — FBT applies. The SEPL decision does not change that.
What the case does is set a clearer line. On one side: employees who receive benefits in respect of their employment — FBT applies. On the other side: beneficiaries who receive distributions and perks in their capacity as beneficial owners — FBT does not apply. The question is which side your clients' arrangements actually sit on, and whether the paperwork proves it.
Caution — Division 7A: While SEPL is a win for FBT, avoiding FBT does not mean the arrangement is cost-free. Where a company provides a benefit to a shareholder or their associate (including via a trust), Division 7A of the ITAA 1997 may deem an unfranked dividend, triggering income tax at the recipient's marginal rate. Always check for Division 7A implications alongside any FBT review — your accountant needs to look at both simultaneously.
What You Need to Check Now
The FBT year ended 31 March 2026. If your business provides vehicles or other benefits to family members, now is the time to review your arrangements and documentation — not after an audit notice arrives.
If the family member is an employee (wages, contract, superannuation):
- Written employment contract, signed and dated
- Board or trustee resolution formalising the appointment
- Payroll records showing regular wages or salary
- Superannuation guarantee contributions being made
- Leave entitlements tracked (annual leave, personal leave)
- FBT return lodged if the value of benefits exceeds the $10,664 reportable fringe benefits threshold
If the family member is a beneficiary/proprietor (no wages, distributions only):
- Trustee resolutions documenting annual distributions
- Beneficiary account statements showing how costs and distributions flow
- No wages or salary payments — these would blur the line
- Vehicle personal use costs debited to the beneficiary account, not treated as an employment benefit
- Trust deed clearly establishing their beneficiary entitlements
- Evidence of "minds and management": board or trustee minutes showing family members making high-level strategic decisions (acting as owners), not just performing day-to-day operational tasks (which would look more like employment)
- Board or trustee minutes showing their governance role, not a subordinate one
For every vehicle provided to a family member:
- Compliant logbook (12-week record, valid for 5 years or until usage pattern changes significantly)
- Vehicle registration and insurance records retained
- If it is a beneficiary arrangement: personal use costs tracked and debited to the beneficiary account with supporting records
The ATO looks for inconsistency. If a family member is described as an independent operator in some documents but receives benefits that look like employment perks in others, that inconsistency is an audit trigger.
The FBT Rates at a Glance (2025–26)
For reference — these are the numbers that matter if FBT does apply to your situation:
| Rate or Factor | Amount |
|---|---|
| FBT rate (2025–26 year) | 47% |
| Car benefit statutory rate | 20% of opening value |
| Gross-up rate (Type 1 — GST credits claimed) | 2.0802 |
| Gross-up rate (Type 2 — no GST credits) | 1.8868 |
| Reportable fringe benefits threshold | $10,664 |
Worked example: A car with an opening value of $60,000, where 100% is private use.
Taxable value: $60,000 × 20% = $12,000 FBT liability (Type 1): $12,000 × 2.0802 × 47% = $11,732
That is a significant tax cost — and one that can be avoided entirely if the arrangement is structured correctly and the documentation is there to prove it.
When to Get an Accountant Involved
If your family business provides vehicles, accommodation, or travel to family members who work in the business, this is worth a conversation with your accountant — especially if:
- You have not reviewed your FBT position since the arrangements were set up
- Family members' roles have changed (from beneficiary to paid employee, or vice versa)
- You are currently lodging nil FBT returns but providing vehicles
- You want to restructure arrangements following the SEPL decision
Reviewing the documentation now, before an audit, is far cheaper than defending your position afterwards.
Bottom Line
The SEPL case is good news for family business owners who are genuinely running their businesses as proprietors through a trust structure — and have the records to prove it. The ATO tested the boundaries and lost.
But the win was built on substance, not clever structuring. The key action right now: sit down with your accountant, look at how family members in your business are characterised, and make sure your documentation matches that characterisation. If it does not, fix the paperwork before the ATO finds the gap.
This article is general information only and does not constitute personal tax advice. Your specific circumstances may differ — speak to a registered tax agent before making changes to your arrangements.
