Ask your Aspen advisor:
“We have family members working in the business and enjoying a few perks – are we sure those benefits are being treated properly for FBT?”
A recent court case involving a large family business, a trust structure and a fleet of luxury vehicles is a useful reminder that in family groups, informal does not always mean invisible.
The case looked at whether benefits provided to working family members were given because they were employees, or because they were beneficiaries and controllers of the trust.
That difference matters, because Fringe Benefits Tax only applies where the benefit is provided in respect of employment.
What happened
In the case, three brothers worked in a large family business run through a discretionary trust. They had access to a long list of luxury vehicles, including Bentleys and Ferraris, for both business and private use. The ATO argued the private use portion should be subject to FBT because the brothers were employees.
After a long path through the courts, the Full Federal Court sided with the taxpayer. It found it was open to conclude that the brothers were not employees in the ordinary sense for FBT purposes, and that the benefits were more closely connected to their roles as beneficiaries, proprietors and controlling family members.
Why this matters
This does not mean all perks in a family trust are suddenly safe from FBT.
What it does mean is:
- the facts matter
- the documentation matters
- and the reason the benefit is provided matters
If a phone, vehicle, travel or another perk is really being provided because someone works in the business, the ATO may still see it as an employment benefit. If it is genuinely linked to a beneficiary entitlement or ownership interest, that may point in a different direction.
Where family businesses get into trouble
The ATO is especially interested where:
- family members wear multiple hats
- there are no clear employment agreements
- benefits are provided casually
- and the paperwork does not clearly show how those benefits are meant to be treated
This is where “we’ve always done it this way” can become expensive
What to review now
If your business provides benefits to family members involved in operations, now is a good time to check:
- how those benefits are documented
- whether they are tied to trust resolutions or remuneration
- whether there are Division 7A or deemed dividend risks sitting nearby
- whether FBT has been considered properly, not just assumed away
Final thought
The SEPL decision is helpful for taxpayers, but it is also a warning shot. Courts will look at substance, not just labels.
If your family business has working owners, trust distributions and a few perks floating around, it is worth a proper review with your Aspen advisor before the ATO asks its own questions.
