When are benefits to directors provided “in respect of employment”?

The Full Federal Court has ruled in the taxpayer’s favour in SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36. The issue was whether Fringe Benefits Tax (FBT) applied to the use of luxury cars made available to three brothers - the shareholders and directors of the corporate trustee of a business, of which the brothers were among the trust beneficiaries.

The Court held that it was open to the Tribunal to conclude that the brothers were not employees. There were no written employment contracts, they did not receive wages or other employee entitlements. Rather, their role was consistent with being owners and responsible for governance.

Furthermore, even if employment was assumed, the provision of the cars was not “in respect of employment” but better characterised as an incident of beneficial ownership of the business. The relevant costs were debited to their mother’s beneficiary account and offset via trust distributions. There was little evidence that any employment relationship was a material reason for the arrangement.

While the FBT legislation contains a mechanism that extends the definition of “employee” to an individual solely remunerated by way of benefits and not cash amounts subject to PAYG, the judgement indicates this mechanism cannot expand the category of “employee” if an employment relationship does not exist in the first place.

The outcome may also have been affected by the Commissioner, in the first instance, only arguing that employment existed under ordinary concepts, as opposed to outlining the technical basis for a director to be deemed an employee under the specific mechanisms applicable to director payments. The full Federal Court held it was not permissible for the Single Judge to consider this issue when it had not been raised in the first instance. Even if it had, in this instance the individuals were directors of the corporate trustee in its capacity as a corporate entity, as opposed to being employees of the business entity (the trust). Most decisive however, was the factual conclusion drawn by the Tribunal that the ownership relationship was strong enough that it was not obliged to conclude that the director relationship was the driving force for the provision of benefits.

The decision raises interesting issues for any organisation which provides non-cash benefits to directors who do not receive directors fees. It remains critical to analyse the facts in question to draw out whether a similar conclusion to that reached in this case may apply.