Family business FBT clarified by Full Federal Court

Key findings of the Full Federal Court

“Employee” retains its common law meaning

The Court confirmed that simply working full‑time in a family business does not, of itself, create an employment relationship for FBT purposes. The absence of employment contracts, salaries, and employment entitlements supported the conclusion that the brothers acted in an owner/controller capacity, not as employees.

Section 137 limited role

The Commissioner placed heavy weight on Section 137 of the FBTAA, which can deem a benefit recipient to be an employee where a hypothetical cash payment would have been treated as wages. The Court rejected this, emphasising that it does not itself create or deem an employment relationship. Given the brothers were never intended to be paid as employees, the non‑cash benefits were not ‘disguised’ wages.

A sufficient connection to employment remains essential

Consistent with Knowles, the long-standing authority on the meaning “in respect of employment”, the Court reaffirmed that a benefit must be sufficiently connected to employment to attract FBT. 

Even where an individual has some employment like involvement, a taxable fringe benefit must be sufficiently connected to that employment. Benefits provided by reason of shareholding, directorship or beneficiary status – as was the case with the luxury vehicles – are not provided “in respect of employment”.

Moving forward

The Full Federal Court’s decision confirms that FBT is not a broad general anti-avoidance rule for private benefits in family groups. Rather, FBT remains focused on benefits arising from genuine employer–employee relationships. 

For family owned and owner managed businesses, this gives clarity that ownership based benefits are not automatically caught in the FBT net just because family members are actively involved in the business.

However, the decision shouldn’t be seen as an automatic exemption. Businesses should be clear about their structures, and aware of the associated tax implications. 

Businesses should consider the following practical points in response to the SEPL decision

Clearly distinguish owner and employee roles

Ensure roles, documentation and remuneration consistently reflect whether individuals are acting as owners/beneficiaries or employees, as this distinction was central to the Court’s reasoning.

Review non‑cash benefits provided to owners

While SEPL provides greater certainty, significant non‑cash benefits may still attract ATO scrutiny if they seem like remuneration rather than ownership or beneficiary entitlements. This is certainly something that we often see attracting ATO attention, in relation to vehicles in particular.

Look beyond FBT to other tax considerations

The Court’s decision was limited to the FBT question. Even where FBT does not apply, benefits may still give rise to income tax consequences for the recipients. 

We’re here to help

Grant Thornton regularly advises family‑owned and privately held businesses on the interaction between ownership structures, remuneration strategies and employment tax obligations.

We can assist with:

• reviewing whether key individuals’ roles are appropriately characterised as owners, beneficiaries or employees for FBT and PAYG purposes 
• identifying risks arising from non-cash benefits that are provided outside formal remuneration arrangements 
• assessing broader trust, income tax and reporting implications where benefits are treated as distributions rather than employment benefits 
• strengthening governance so that what is documented reflects how the arrangement actually operates.

If you require any assistance, please contact a member of our Employment Taxes team or your usual Grant Thornton adviser.

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