FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is allowed.

2.    The decision of the Administrative Appeals Tribunal dated 10 May 2024 is set aside and in lieu thereof it is ordered that:

(a)    The objection decision be affirmed; and

(b)    The application by the respondent to the Administrative Appeals Tribunal for review of the objection decision is dismissed.

3.    There be no order as to costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’SULLIVAN J:

1    The Commissioner of Taxation appeals from a decision of the Administrative Appeals Tribunal: BQKD v Commissioner of Taxation (10 May 2024) (Reasons or R) in which the Tribunal set aside a decision of the Commissioner (objection decision) made 9 March 2022, disallowing the respondent’s objection to an amended Fringe Benefit Tax assessment over the years 2016 – 2020. The Tribunal ordered in substitution that the objection should be allowed.

2    The respondent Taxpayer, who was the applicant before the Tribunal, is the Corporate Trustee of a discretionary Trust.

3    The FBT concerned non-monetary benefits granted to three brothers who had exclusive, personal use of over 40 luxury and high-performance motor vehicles.

4    The brothers are the sole Directors and shareholders of the Taxpayer. In its role as Trustee, the Taxpayer was engaged in significant commercial operations, involving petrol stations, convenience stores, fast food and tobacco outlets, and gift shops.

5    The brothers were among many eligible beneficiaries of the Trust, which included extended family. They alone, of the eligible beneficiaries, played an active “hands on role” in the Taxpayer’s business. They did not receive salaries but instead benefited in two ways:

(1)    Sharing the Taxpayer’s business profits through an informal arrangement reached between the brothers with the profits being distributed to each of the brother’s family trusts (also eligible beneficiaries); and

(2)    Each brother had the exclusive use of luxury and high-performance motor vehicles purchased in the Taxpayer’s name. Each brother used the motor vehicles allocated to him for both business and personal uses over the relevant FBT years.

6    The expenses associated with the motor vehicles were debited to their mother’s loan account with the Trust. The loan was fully repaid from income of the Trust distributed to the mother grossed up to provide an amount sufficient to clear her loan account and to pay the income tax payable by her on the amount of that distribution.

7    There was no issue before the Tribunal that the provision of the motor vehicles for the private use of each of the Directors is a benefit within the meaning of s 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth). There was also no issue about the quantum of the assessment.

8    The two issues before the Tribunal were:

(1)    Whether on the facts found, the brothers in their roles as Directors of the Taxpayer, come within the statutory meaning of the word “employee” for the purposes of the FBTAA; and

(2)    If so, whether the provision of the motor vehicles was “in respect of” the employment of the brothers for the purposes of the FBTAA.

9    The Tribunal determined that the brothers were not employees, but even if they had been, the non-cash benefits were not conferred in respect of employment.

Questions of Law

10    The Commissioner appeals from the Tribunal’s decision pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) which provides that a party to a proceeding before the Tribunal may appeal on a question of law from any decision of the Tribunal in that proceeding.

11    The Commissioner advances the questions of law on the basis that the facts as found fall within the provision of a statutory enactment i.e. the FBTAA: Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) FCR 280, 287.

12    There are 5 questions of law identified in the notice of appeal which I summarise below:

(1)    Whether a person is an “employee” within the meaning of s 136 of the FBTAA, of a company in its capacity as trustee, in circumstances where that person holds the office of director of the company, performs the function and duties of a director in the daily operations of the company, and engages entirely in the work and operations of the company.

(2)    Whether on the facts as found by the Tribunal and/or on the uncontroverted evidence before the Tribunal, a person comes within the meaning of “employee” in s 136 of the FBTAA and also comes within the definition of “employment” in s 136 where that person:

(a)    holds the office of director of the company; and/or

(b)    performed the functions and duties of a director?

(3)    Whether by reason of the facts found by the Tribunal and/or uncontroverted evidence before the Tribunal, the Directors of the company did any act or thing resulting in each or any of them being treated as an employee within the meaning of s 136 of the FBTAA and the definition of “employment” in s 136 of the FBTAA.

(4)    Whether on the facts found by the Tribunal and/or the uncontroverted evidence before the Tribunal, the three Directors on whom the Taxpayer conferred non-cash benefits were “employees” as defined in s 136(1) of the FBTAA.

(5)    Whether on the facts as found by the Tribunal and/or the uncontroverted evidence before the Tribunal, the non-cash benefits conferred on each of the three Directors were provided to the individuals “in respect of the employment of an employee” within the meaning of s 138B of the FBTAA.

Grounds of Appeal

13    There are four grounds of appeal:

(1)    The Tribunal erred in concluding that the three individuals, who together comprised all the Directors of the Taxpayer’s (Trustee Board) during the relevant FBT years, were not “employees” of the Taxpayer (R [8], [70], [72]-[73] and [93]) having regard to:

(a)    The facts as found, in particular the factual findings that:

(i)    The individuals “worked in the business” and “played an active ‘hands on’ role in the management of the [Taxpayer’s] affairs” in which they were “completely immersed” leaving “little time for other pursuits”: (R [3], [29]-[31], [77]);

(ii)    The individuals were recorded in the Taxpayer’s payroll system, and the Taxpayer made employer contributions to the individuals’ respective superannuation funds in the 2016, 2017 and 2018 income years up to the concessional contributions cap, for which the Taxpayer claimed a tax deduction: (R [67], [69]);

(iii)    The Trustee Board allocated responsibility to each individual for particular aspects of the Taxpayer’s business (R [61]) and the individuals described the allocated roles they performed as that of “Chief Executive Officer”, “Managing Director” and “Executive Director”: (R [41], [54]);

(iv)    In carrying out their allocated roles, the individuals accepted they were bound by decisions of the Trustee Board, abided by budgets set by the Trustee Board, and accepted limits to their authority set by the Trustee Board, including that the Trustee Board could direct and overrule the individual in relation to the performance of his responsibilities: (R [59], [61 ], [63]); and/or

(b)    The uncontroverted evidence adduced by the Taxpayer that:

(i)    The terms of the Trust conferred power on the Trustee to:

A.    Decide on the employment of directors of the Trustee at such remuneration as the Trustee thinks fit and take such actions as are necessary or expedient in that regard (Trust Deed, cl 6(k)(vii)-(viii));

B.    Remunerate any discretionary object of the Trust in the employ of the Taxpayer for services rendered in connection with that employment (Trust Deed, cl 6(u));

(ii)    During the relevant FBT years, the Taxpayer owned between 130 and 160 petrol retailers with associated convenience stores, and 100 to 200 “Tobacco and Giftbox” stores. It had between 3,000 and 4,000 employees;

(iii)    The individuals “were on call 24 hours per day, seven days per week ... [working] 60 hours per week” and regularly on weekends for the Taxpayer. Their work included meetings with owners and executives of suppliers, visiting stores, and inspecting issues reported to them in relation to those stores;

(iv)    Commencing in or around 2006, the Taxpayer acquired and held numerous high performance and other luxury motor vehicles, including multiple Bentley, Rolls Royce, Mercedes Benz, Ferrari, Aston Martin, McLaren and Porsche motor vehicles. The Taxpayer held over 40 such motor vehicles during the relevant period;

(v)    The individuals were exclusively responsible for selecting the vehicles to be acquired by the Taxpayer;

(vi)    The individuals had exclusive use of the motor vehicles. They used them for both business-related activities (e.g. travelling between the Taxpayer’s outlets) and private purposes. The Taxpayer claimed tax deductions for the estimated business use;

(vii)    There was no resolution by the Trustee Board giving the individuals access to the motor vehicles in their capacity as beneficiaries of the Trust; and/or

(viii)    The Taxpayer made funds available to meet the individuals’ private expenses including: school fees; the purchase of real estate; the payment of phone bills and travel costs; and the payment of medical expenses. The payments of these funds was debited to the mother’s individual beneficiary account maintained by the Taxpayer.

(2)    The Tribunal should have concluded that the individuals were “employees” of the Taxpayer having regard to the facts and/or the uncontroverted evidence before the Tribunal (as referred to in ground 1 above).

(3)    In circumstances where the Taxpayer conceded that the conferral on the individuals of exclusive use of over 40 high performance and other luxury motor vehicles owned by the Taxpayer during the relevant FBT years was a “benefit” for the purposes of the FBTAA, the Tribunal erred in concluding that the non-cash benefits in the form of the exclusive use of the motor vehicles were not provided to the individuals “in respect of” the[ir] employment having regard to the facts as found and the additional factual findings, in particular:

(a)    The individuals “worked in the [respondent’s] business without [cash] wages” and regarded themselves “as the persons ultimately entitled to the [Taxpayer’s] profits”; (R [77]); and

(b)    The matters referred to in Ground 1, paragraphs (b)(vii) and (b)(viii) above.

(4)    In circumstances where the Taxpayer conceded that the conferral on the individuals of exclusive use of over 40 high performance and other luxury motor vehicles owned by the Taxpayer during the relevant FBT years was a “benefit” for the purposes of the FBTAA, the Tribunal should have concluded that the non-cash benefits in the form of the exclusive use of the vehicles were provided to the individuals “in respect of” the[ir] employment having regard to the facts as found and the uncontroverted evidence (as referred to in ground 3 above). (Square brackets in original)

Issues on appeal

14    The issues arising on this appeal are:

(a)    Are the questions posed by the Commissioner questions of law?

(b)    Did the Tribunal err in law by determining the Directors were not employees within the meaning of the FBTAA?

(c)    Did the Tribunal err in law by determining that non-cash benefits conferred on each of the three Directors were not provided to them “in respect of” their employment as employees of the Taxpayer within the meaning of the FBTAA?

15    It is for the reasons which follow that:

(a)    The questions posed by the Commissioner are questions of law;

(b)    The Tribunal erred in law in determining the Directors were not employees within the meaning of the FBTAA; and

(c)    The Tribunal erred in law in determining that non-cash benefits conferred on each of the Directors were not provided to them “in respect of” their employment as employees of the Taxpayer within the meaning of the FBTAA.

The Tribunal’s Reasons

16    The Tribunal commenced with an analysis of the FBTAA.

17    After referring to various definitions in s 136 including: “benefit”; “provided” (sic provide); “employer”; “current employee”; “employment”; and “salary and wages”, the Tribunal Member referred to s 137.

18    The Tribunal interpreted s 137 as requiring the decision-maker to analyse the circumstances in which the benefit was paid or conferred when deciding whether the relationship in question is, in fact, an employment relationship: R [12]-[14].

19    It was from that point, the Tribunal determined that the definitions of “employer”, “employee” and “employment relationship” are not exhaustive and that they “… ultimately rely on common law concepts of employment and the characterisation of employment relationships.”: R [15].

20    The Tribunal continued by analysing the family business conducted by the Taxpayer.

21    The Tribunal did so by reference to the evidence of one of the brothers (Mr Smith - not the witness’ real name) whom the Tribunal found to be an impressive witness and whose evidence was accepted.

22    The Tribunal noted that the patriarch of the family set up the family business in or about 1984 in which the children worked but were not paid salary or wages, “because it was a family business” (emphasis in original).

23    The Tribunal referred to the Deed of Trust executed 1 October 1987 by which a family trust was set up with the Taxpayer as Trustee. The Taxpayer changed its name on 30 March 2021, but nothing turns on that.

24    At Reasons [21], the Tribunal summarised some of the provisions of the Trust Deed, making reference to the manner in which a distribution could be declared and that the Trustee was expected to exercise its powers and discretions by passing a resolution of the board. The Tribunal also referred to cl 5(f) of the Trust Deed which, in summary, permitted any “Eligible Beneficiary” to use any of the chattels forming part of the Trust Fund on such terms and conditions as the Trustee shall think fit.

25    The Tribunal referred to the Directors as being actively involved in the business and holding titles such as “Chief Executive Officer”, “Managing Director” and “Executive Director”.

26    The Tribunal noted that each individual was bound by the decisions of the Directors as a whole and was obliged to adhere to budgets set by the Directors. So too, there were limits as to each Director’s authority with the Directors as a whole being able to directly overrule an individual Director in relation to the performance of his responsibilities.

27    It is in the context of the titles being given to the Directors, such as “Executive Director”, that the Tribunal referred to the document titled “Delegation of Authority Policy”: Tab 8, annexure YS-1 to Mr Smith’s affidavit sworn 28 October 2022. The Taxpayer is part of the corporate group to which that document applies.

28    The Tribunal was not satisfied that the use by the Directors of titles such as “Executive Director” amount to some sort of statement that the Directors understood they were really employees: R [57].

29    The Tribunal referred, at Reasons [67]-[71], to the fact that the Taxpayer made employer contributions into the superannuation funds for each of the three Directors in the 2016, 2017 and 2018 years up to the concessional limit for which the Taxpayer claimed a tax deduction. Contributions made in 2019 and 2020 were treated as personal contributions into the brothers’ individual superannuation accounts at the direction of each brother.

30    The Tribunal considered this evidence to be a weak indicator of employment relationship when viewed along with other indicia.

31    The Tribunal concluded that the Directors were not “employees” within the meaning of the FBTAA provisions. That conclusion was underpinned by four central considerations: R [72].

(a)    First, the absence of any evidence of a board resolution to establish a contract of employment in circumstances where the Tribunal would expect there to be a record of a resolution to that effect if it were intended;

(b)    Second, the evidence of control, which the Tribunal described as a typical feature of a contract of service “was of limited value given the control that was potentially exercisable was referrable to the underlying corporate contract (i.e. the Constitution of the Trustee) and did not of itself point to an underlying employment contract”;

(c)    Third, the Directors occupied positions at the apex of the Taxpayer rather than being integrated into the hierarchy of the Taxpayer; and

(d)    Fourth, other indicia of an employment relationship did not clearly point in that direction.

32    Having found the Directors were not employees, nonetheless the Tribunal turned to the second issue should that conclusion be wrong, i.e. whether or not the non-cash benefits received by the Directors were provided “in respect of” employment: ss 136(1), 7(1) and 138B.

33    The Tribunal observed there was no clear evidence that the private use benefits were provided to the Directors in lieu of fees or remuneration and that the Trust Deed permitted the Trustee to provide an eligible beneficiary with access to Trust Property (cl 5(f)), such as motor vehicles.

34    The Tribunal Member continued by noting that there was limited evidence of a decision being made by the Trust to supply motor vehicles to the Directors in their capacity as beneficiaries. Further, there was no record of any resolution, or in the accounts of the Trust, of the motor vehicles being a distribution to the individual Directors.

35    The Tribunal referred to Mr Smith’s evidence that no payment of any direct salary or wages were made to the brothers in the relevant years. Further, none of the brothers received distributions from the Trust in their own name. Instead, distributions were channelled into their respective family trust accounts.

36    In considering whether the provision of the motor vehicles was a benefit “in respect of” the employment of an employee, the Tribunal drew support from J & G Knowles and Associates Pty Ltd v Commissioner of Taxation [2000] FCA 196; (2000) 96 FCR 402 (Heerey, Merkel and Finkelstein JJ). The Tribunal noted that in that matter, the directors received benefits not as a reward for services rendered as employees or directors, but from a genuine belief that they were entitled to those benefits as beneficiaries.

First issue - questions of law

37    The Court’s jurisdiction in an appeal under s 44 of the AAT Act is limited strictly to questions of law. The limitation reflects a fundamental distinction in administrative law: it is for the Tribunal to determine facts, and for the Court to intervene only where a legal error arises from that factual determination: Brown v Repatriation Commission [1985] FCA 236; 7 FCR 302, at 304, cited in Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315, at [85].

38    As to what constitutes a question of law, in Haritos the Full Court observed at [62]:

The expression “may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal” in s 44 should not be read as if the words “pure” or “only” qualified “question of law”. Not all so-called “mixed questions of fact and law” stand outside an appeal on a question of law.

39    The Commissioner challenges the Tribunal’s conclusion on two related matters: first, whether the Tribunal erred in law in finding that the Directors were not “employees” (Questions 1 – 4); and second, whether the Tribunal erred in law in concluding that the motor vehicle benefit was not provided “in respect of” employment (Question 5).

40    The Commissioner submits that the questions of law arise on the basis that on the facts as found, the Directors were employees within the meaning of the FBTAA and that they received a benefit “in respect of” their employment within the meaning of the FBTAA.

41    The Taxpayer submits the Commissioner raises a matter in its submissions which was not raised before the Tribunal. That matter is that the definition of “employment” in s 136(1) extends the meaning of “employee” throughout the FBTAA, and in particular the definition of “fringe benefit”, so that an “employee” includes a person “being treated as an employee”. It refers to the Commissioner’s submission that the Tribunal erred in not having regard to the definition of “employee” when considering the first issue of whether the Directors were employees. Relying on that submission, the Taxpayer submits there are three difficulties founding a question of law on this point.

42    First, that the definition of “employment” in s 136(1) was not raised by the Commissioner at the Tribunal and a Tribunal does not err in law by failing to consider issues of law not raised by parties: Wu v Commissioner of Taxation [2018] FCA 1339; 108 ATR 613 at [19].

43    Second, the Tribunal refers to the definitions of “employee” and “employment” in its’ Reasons from which it may be inferred that the Tribunal considered it.

44    Third, that whether a person was “treated as an employee” is quintessentially a factual matter, such that an error of law will only arise if no conclusion, other than the Directors were treated as employees, was open to the Tribunal.

45    As to the first point, the question of employment and whether the brothers in their role as Directors were employed by the Taxpayer, was a central focus of the matter before the Tribunal. Wu does not assist the Taxpayer.

46    As to the second point, whether someone is an employee within the meaning of the FBTAA on the facts as found, and over which there is no dispute, is a question of law: Sharp Corporation of Australia Pty Ltd v Collector of Customs [1995] FCA 707; 59 FCR 6 at 16.

47    As to the third point, the question of whether someone is treated as an employee for the purposes of the FBTAA, is a question of statutory construction against given factual circumstances: Sharp.

48    Next, the Taxpayer submits that the second issue of whether benefits were provided “in respect of” employment requires evaluating if there is a sufficient or material relationship between the employment and the benefit provided: J & G Knowles at [33].

49    I accept that submission, but it is still a question of whether on the facts as found, the benefit conferred comes within the statutory definition of “in respect of” employment.

50    Finally, the Taxpayer submits that the only relevant questions of law were whether, on the facts before the Tribunal, it must necessarily have found that first, the brothers were employees and second, a sufficient or material relationship existed between the brothers’ employment and the provision of the benefits such that no other finding was open on the evidence.

51    I accept that submission.

52    It follows that all five questions raised are questions of law, albeit with there being some overlap between the first four questions.

Second issue - were the Directors employees?

53    The second issue is the subject of grounds 1 - 3 inclusive.

The parties’ submissions and consideration

54    Both the Commissioner and the Taxpayer rely on the principles in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 275 CLR 165.

55    The Commissioner submits that the combination of executive titles, day-to-day involvement, compliance with corporate procedures, and receipt of benefits, justified a finding of employment under the “totality of the relationship” test established in Personnel at [56], [186].

56    The Taxpayer relies on the principle set out in Personnel articulated at [57]:

[57]    In Hollis, the “contractual relationship” pursuant to which Vabu “imposed” its work practices upon couriers was partly oral and partly in writing. The terms of the relationship between the parties had not been committed comprehensively to a written agreement. Moreover, there was no suggestion in any of the judgments in Stevens or Hollis that their Honours entertained any misgivings as to the statements of principle in Chaplin and Narich. Indeed, in Stevens, Mason J (with whom Brennan J agreed) and Wilson and Dawson JJ referred to Chaplin with evident approval. It is also noteworthy that Gleeson CJ, who followed Narich in Connelly v Wells , was a party to the plurality judgment in Hollis. As has been correctly observed, Hollis“does not alter or even challenge the orthodox principle that courts are not concerned with what has ‘actually occurred’ in a relationship, but rather with ‘the obligations by which the parties [are] bound’”. (citation omitted)

57    Personnel concerned the question of whether an individual who had entered into a wholly written contract with a labour hire company which described him as a “contractor”, and who worked on building sites under the supervision and direction of a builder, was an “employee” for the purposes of an industrial award. The award applied if the individual was an “employee” under the Fair Work Act 2009 (Cth).

58    In Personnel, “employer” and “employee” were defined in s 11 of the Fair Work Act to “have their ordinary meaning”. Gageler and Gleeson JJ considered that the “ordinary meaning” to which the definitions refer “... are not the grammatical meanings of the legislatively chosen words purposively construed in the statutory context. The reference in the definition is instead to the meanings ascribed to ‘employer’ and ‘employee’ at common law.”

59    In the same case, Kiefel CJ, Keane and Edelman JJ referred to Commonwealth Bank of Australia v Barker (2014) 253 CLR 169, 178 at [1] (French CJ, Bell and Keane JJ) where their Honours observed that the “… employment relationship in Australia operated within a legal framework defined by statute and by common law principles informing the construction and content of the contract of employment”.

60    Their Honours also observed that there was no reason why “… subject to statutory provisions or awards, established legal rights and obligations in a contract that is entirely in writing should not exclusively determine the relationship between the parties but there is every reason why they should”: at [44].

61    Their Honours continued: at [58] that to agree upon their rights and duties which constitute their relationship did not extend to attaching a “label” to describe a relationship inconsistent with the rights and duties set out on the basis that “to do so would be to elevate their freedom to a power to alter the operation of statute law to suit themselves …”; and at [66] that:

As a matter of principle, however, it is difficult to see how the expression by the parties of their opinion as to the character of their relationship can assist the court, whose task it is to characterise their relationship by reference to their rights and duties. Generally speaking, the opinion of the parties on a matter of law is irrelevant. Even if it be accepted that there may be cases where descriptive language chosen by the parties can shed light on the objective understanding of the operative provisions of their contract, the cases where the parties’ description of their status or relationship will be helpful to the court in ascertaining their rights and duties will be rare.

62    In circumstances where the question is whether the brothers are employees within the meaning of the FBTAA. Personnel does not assist either party.

63    The Taxpayer submits further that the Directors’ exercise of authority within the Taxpayer was collective and consensual, lacking the individual control indicative of employment. It refers to Hollis v Vabu [2001] HCA 44, 207 CLR 21, at [43]-[45], where a critical distinction was said to be between “the actual exercise of control” as opposed to “the right to exercise control”.

64    As with Personnel, Hollis does not assist the Taxpayer. That matter concerned whether a company, which operated a courier business and which engaged individual couriers to deliver articles, was vicariously liable for the acts of a courier who had injured a third party. In finding vicarious liability, the plurality held that the courier was an employee of the company. It was in those circumstances that the concept of the actual exercise of control in the context of whether an individual is an employee or independent contractor assumed relevance.

65    Next, the Taxpayer points to the Tribunal’s finding that it was not satisfied at R [57] that the sue of titles, such as “Executive Director”, used by the individuals amounted to some sort of statement that the Directors understood they were employees.

66    With respect, the subjective view of the individuals is not to the point: Personnel at [58], [66]. The question is whether the individuals come within the definition of “employee” in the FBTAA.

The statutory framework

67    The Taxpayer submits that the Tribunal was correct in finding that the brothers were not employees, contending this conclusion was open on the evidence which it submits is sufficient to dispose of the first question of law.

68    I do not accept that submission for the following reasons.

69    The Tribunal proceeded on the basis that the definitions of “employer”, “employee” and “employment relationship” are not exhaustive and that they “… ultimately rely on common law concepts of employment and the characterisation of employment relationships.”: R [15]. No authority was cited for that proposition.

70    In determining whether someone is an “employee” for the purposes of the FBTAA, it is necessary to address the relevant provisions of the FBTAA. Contrary to the Tribunal’s conclusion at R [15], given the definitions in question, recourse to common law concepts of whether an employment or employment relationship exists has no role to play in that process.

71    I accept that considerations of whether the individuals in question are employees for the purposes of the FBTAA cannot be determined in a factual vacuum and that the facts as found and/or the uncontroverted evidence inform that inquiry. However, the fact-finding exercise does not evolve into an enquiry involving consideration of common law concepts in order to determine whether an employer and employee relationship exists for the purposes of the FBTAA.

72    The resolution of this issue involves an exercise in statutory construction, the approach to which has been repeatedly set out in numerous authorities as involving questions of text, context and purpose: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; [1998] 194 CLR 325, 381 at [69]-[70], [78] (McHugh, Gummow, Kirby and Hayne JJ).

73    In SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at [14] Kiefel CJ, Nettle and Gordon JJ emphasised the importance of starting with the statutory context and text:

The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected.

74    The provision of non-cash benefits, such as the use of a motor vehicle, is specifically contemplated under the FBTAA. Section 7(1) provides:

Car benefits

(1)    Where:

(a)    at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the provider):

(i)    is applied to a private use by the employee or an associate of the employee; or

(ii)    is taken to be available for the private use of the employee or an associate of the employee; and

(b)    either of the following conditions is satisfied:

(i)    the provider is the employer, or an associate of the employer, of the employee;

(ii)    the car is so applied or available, as the case may be, under an arrangement between;

(A)    the provider or another person; and

(B)    the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

75    As I have noted, the task of construing whether a given fact situation comes within definitions of, amongst other things, “employer”, “employee” and “employment” (not “employment relationship”), in s 136(1) of the FBTAA is one that starts with text and context.

76    “Employment” in relation to a person, is defined as meaning:

… the holding of any office or appointment, the performance of any functions or duties, the engaging in of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.”

77    It is clear from both text and context that each of the three Directors holds an “office” or an “appointment” as those words are commonly understood.

78    “Employee” is defined as meaning:

(a)    a current employee;

(b)    a future employee; or

(c)    a former employee.

79    “Current employee” means:

a person who receives, or is entitled to receive, a salary or wages.

80    “Salary or wages” means (relevantly):

(a)    a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; …”

81    Each of the three brothers is a Director. However, none of them received any payment from the Taxpayer for the duties they perform.

82    It is in those circumstances that s 137 is important. It provides (relevantly):

137 Salary or wages

(1)    For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

(a)    a benefit is provided by a person (in this subsection referred to as the first person) to, or to an associate of, another person (in this subsection referred to as the second person);

(b)    but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

(c)    either of the following conditions is satisfied:

(i)    if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

(ii)    …

a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by:

(d)    in a case to which subparagraph (c)(i) applies—the first person;

(e)    …

83    So it is that the FBTAA sets out the means by which, for the singular purpose of the FBTAA, it is able to be ascertained whether a person is an employee or employer within the meaning of that Act.

84    Accordingly, the legislation recognises situations where a benefit is provided to a person who may not qualify as an employee in the conventional sense.

85    The Taxpayer submits that the definition of employment in s 136(1) does not expand the meaning of employee beyond its common law meaning.

86    I do not accept that submission. Section 137(1) of the FBTAA operates as a statutory deeming provision that assists in determining whether a person should be treated as an employee. It does so by applying a hypothetical test: if the benefit had instead been paid in the form of a cash payment, would it constitute a salary or wages for the purposes of s 12-35 or s 12-40 of Schedule 1 to the Taxation Administration Act 1953? If the answer is yes, the recipient of the benefit is deemed to have received a salary or wages, which results in the recipient coming within the definition of “employee” for the purposes of the FBTAA.

87    To that extent, the FBTAA provides a comprehensive and self-contained definition of employee and expressly incorporates a statutory deeming provision in s 137(1) to broaden the concept of employment.

88    Applying s 137, each of the three Directors:

(a)    Received a benefit in the form of motor vehicles provided by the Trustee, thereby satisfying s 137(1)(a);

(b)    But for s 137, the benefit would not be regarded as having been provided in respect of their employment thereby satisfying s 137(1)(b). I deal with the question of “in respect of” their employment later in these reasons, but I am satisfied the benefit has been provided to each of the Directors in respect of their employment;

(c)    If the benefit was provided by the Trustee by way of a cash payment to the Directors, the payment would constitute a salary or wages paid by the Trustee to the Directors. When taken with the definition of “salary or wages” in s 136(1), and the table contained within that provision, s 137(1)(c)(i) is satisfied; and

(d)    Under those circumstances, the definition of employee in s 136(1) applies as if the benefit, i.e. the provision of the motor vehicles for exclusive, personal use was salary or wages paid to each of the Directors by the Trustee, thereby satisfying s 137(d).

89    Applying the provisions of the FBTAA, each of the Directors is an employee within the meaning of, and for the sole purpose of, the FBTAA. Further, on the facts as found and/or on the uncontroverted evidence, only one conclusion was open to the Tribunal had it applied those facts to the legislative provisions.

90    In relying on common law concepts of employment and for characterisation of an employment relationship, the Tribunal erred in law in that its conclusion was not based upon the application of established facts to the legislation but was based upon erroneous concepts.

91    The Commissioner submits the term “employment”, within the deeming provision of s 136(1), necessarily encompasses directors of a company who hold an office, regardless of the fact that the company acts as trustee. I accept that submission for the reasons I have set out.

92    As to s 137 being a deeming provision, in Wellington Capital Limited v Australian Securities and Investments Commission (2014) 254 CLR 288 at [51], Gageler J (as his Honour then was) explained that, “Ordinarily a legal fiction is not construed to have a legal operation beyond that to achieve the object of its incorporation” and that the principle applies to statutes as well as instruments such as a trust deed.

93    The significance of s 137 being a deeming provision is that applying the construction I have to the uncontroverted facts of this case does not result in any absurdity or unintended consequences at large.

94    The Tribunal agreed with the Taxpayer’s submission that the evidence did not suggest an employment relationship existed. At Reasons [72], the Tribunal set out four reasons for that conclusion, all of which go to facts which are relevant for the purposes of establishing whether at common law the Directors were employees and/or in employment.

95    It follows from what I have set out above that in reaching its conclusion that an employment relationship did not exist, i.e. that the Directors were not employees, the Tribunal erred in law.

Conclusion on the second issue

96    The Commissioner succeeds on grounds one and two in that the Tribunal erred in law in not concluding that the three individuals, each of whom was a Director of the Taxpayer during the relevant years, were “employees” of the Taxpayer within the meaning of the FBTAA.

97    Under those circumstances, the answer to the fourth question of law is that on the facts found by the Tribunal and/or the uncontroverted evidence before the Tribunal, each of the three Directors on whom the Taxpayer conferred non-cash benefits were “employees” within the meaning of s 136(1) of the FBTAA.

Third issue - were the benefits conferred “in respect of” the employees’ employment?

98    The fifth question of law and grounds three and four of the notice of appeal, relate to the Tribunal’s decision that if the three Directors were employees, the benefit received by each of them was not “in respect of” their employment.

The parties’ submissions and consideration

99    The Taxpayer submits that in order to show the Tribunal’s finding was not open, it is necessary for the Commissioner to show that on the facts as found, the only possible finding was that a sufficient or material relationship existed between the benefit and employment: J & G Knowles at [29].

100    The Commissioner submits that the Tribunal erred in finding that the three brothers were in a position analogous to the directors in J & G Knowles.

J & G Knowles

101    J & G Knowles was a matter in which the corporate trustee of a unit trust was assessed as being liable to pay Fringe Benefits Tax under the FBTAA on interest-free loans made to its directors.

102    The beneficial interest in the trust fund was divided into units.

103    There were four directors of the corporate trustee, each of which had established a discretionary family trust in which he and his family were beneficiaries. The trustee of each family trust held 25% of the units in the unit trust.

104    Each director was paid a salary.

105    The corporate trustee maintained a cheque account from which funds were drawn by the directors to meet their or their family’s private expenses. At the end of each accounting period, the amounts paid to each director at their request was debited to the loan account of the trustee of that director’s family trust.

106    There was no relationship between the amount each director requested be paid from the corporate trustee’s cheque account and the personal effort involved in working as a director. Nor was there any relationship between the amounts drawn by one director at their request and amounts requested to be drawn by other directors.

107    The issue before the Full Court was whether the loans, which were interest free and which were assessed as a fringe benefit, were provided “in respect of” the employment of the directors.

108    Before the Tribunal, the single issue for determination had been whether the loans were benefits “in respect of” the employment of the directors. The Tribunal determined that the loans were a benefit in respect of the employment of the directors, on the basis that there was a clear causal relationship between the advances or loans and the employment of the four directors. The Tribunal considered that the structure of the group was established in such a way that the directors were not owners and it was in their capacity as directors, and directors only, that they borrowed money from the company of which they were directors. The Tribunal considered that employment was the discernible link with the benefit.

109    On appeal to a single judge of the Court, the primary judge held that, “a benefit is provided to an employee ‘in respect of the employment of the employee’ for the purposes of the definition of ‘fringe benefit’ if it was granted as a consequence of the existence of the employment relationship, or if the relationship is a reason why the benefit is provided, or is a cause of its provision.”: J & G Knowles and Associates Pty Ltd v Commissioner of Taxation [1999] FCA 1060; (1999) 99 ATC 4788 (Sundberg J) at [13].

110    After considering the Tribunal’s findings of fact, the primary judge concluded that it was open to the Tribunal to determine that there was a causal relationship or a discernible and rational link between the loans and each director’s employment. The primary judge held that no error of law had been demonstrated.

111    On appeal, the Full Court observed that the words “in respect of” are capable of having a very wide meaning, denoting a relationship or connection between two things or subject matters, but must be given a meaning depending on the context in which the words are found: at [22].

112    The Full Court considered: at [23] that what was required is a sufficient link for the purposes of the particular legislation and that “… it could not be said that any causal relationship between the benefit and the employment is a sufficient link so as to result in a taxable transaction.” It continued:

For example, a discretionary trust with a corporate trustee might be established to purchase a family home for the benefit of its directors and their family. It does not follow that the rent-free occupation of that home on the authority of the directors is a benefit provided ‘in respect of' their employment for the purposes of the Act. While there is a causal relationship between the provision of the benefit and the employment it is not a sufficient or material relationship. The rent-free occupancy arises because the trust was established for that purpose; a reason extraneous to the employment of the directors.

113    After considering the High Court’s decision in Smith v Commissioner of Taxation (1987) 164 CLR 513, the Full Court observed that the differing approaches by the justices of the High Court in that matter illustrated the difficulty in stating a test to determine whether the requisite relationship or connection exists. The Full Court said: at [26] that whatever the question to be asked, what must be established is whether “… there is a sufficient or material, rather than a, casual connection or relationship between the benefit and the employment.” (emphasis in original).

114    The Full Court continued: at [27] that the question of whether there is a sufficient or material connection or relationship between a benefit and employment is assisted by having regard to the purpose or object of imposing fringe benefits tax on employers. Referring to the second reading speech by the then Treasurer, the Court noted that the purpose of the legislation was to “ensure that all forms of remuneration paid to employees bear a fair measure of tax …” (citation omitted).

115    The Full Court held: at [30] that the Tribunal had failed to consider whether notwithstanding a causal link between the loans and employment, there was “… a sufficient or material relationship or connection between the loans and the employment.”

116    At [33] the Court put the position in the following terms:

Whether or not there is a sufficient connection between each director's employment and the loans to the unitholders to attract FBT was a question of fact for the Tribunal to determine. The material before the AAT pointed in two directions. The first was that the directors drew upon the assets of the unit trust because ultimately the trust was established, and its assets were to be held and applied, for their benefit and that of their families. The second is that it was agreed between the directors that, as an incident of their directorship, each of them were entitled to draw upon the appellant's funds by way of loans for their personal benefit. In the first case it is unlikely that there would be a sufficient connection with the employment, while in the second the loans are likely to be an incident or product of it.

117    Each of the Taxpayer and the Commissioner has pointed to factual findings of the Tribunal said to support their case.

118    The Taxpayer submits it was open to the Tribunal to find that the benefits were not provided by the Taxpayer to the Directors in respect of their employment on a number of bases:

(a)    There was no clear evidence that the private use of the vehicles was provided in lieu of the Directors’ fees or remuneration;

(b)    The Trust Deed permitted the Trustee to provide a beneficiary with access to trust property with little formality;

(c)    The brothers accessed the motor vehicles out of a sense of entitlement to the trust assets as the ultimate owners of the family business;

(d)    The use of the motor vehicles was paid for by trust distributions to the mother as a beneficiary as part of a long-standing family practice of using that account to pay all manner of expenses of family members (not just for the brothers, and not just for the motor vehicles); and

(e)    The Tribunal’s finding that by merely managing the Taxpayer’s business as Directors, the brothers do not thereby become employees. Further, in each brothers’ position as a beneficiary and together as controllers of the Trustee with wide powers, they were able to benefit from the Taxpayer’s business and use trust assets.

119    The Tribunal referred to Mr Smith’s evidence that monies were distributed into the account of the matriarch and used to meet expenses of various family members, including the brothers, such as payment of school fees for grandchildren; the purchase of real estate; the payment of phone bills, travel costs and medical expenses for other family members, such that the matriarch’s beneficiary account served as a type of “family account” from which profits of the business were delivered to family members.

120    As part of that reasoning, the Tribunal noted Mr Smith’s evidence that the cost or value of the brothers’ private use of the motor vehicles was attributed to the matriarch’s beneficiary account, which would then be offset by distributions from the trust in the manner explained earlier in these reasons.

121    It is against that background that the Tribunal referred to J & G Knowles before concluding: at R [92] that although there were unanswered questions over the brothers presuming to claim the benefits of the trust for themselves, nonetheless “… the fact is their motivation in doing so is the same as the directors in J & G Knowles, they are helping themselves to benefits because (as Mr Smith explained) they genuinely believed they were entitled to them as beneficiaries not because they see it as a reward for their work as directors or as employees.” (emphasis in original).

122    The Commissioner submits that as just three of a large number of discretionary objects of the Taxpayer with competing personal interests, the brothers cannot be regarded as the exclusive “owners” or ultimate beneficial owners of the Taxpayer or its assets. The Commissioner submits further that whereas the Tribunal found the brothers accessed the motor vehicles out of a sense of entitlement to the trust assets as the ultimate owners of the family business, the fact remains that there were numerous eligible beneficiaries.

123    The Commissioner also submits that the motor vehicle benefits cannot be said to have been conferred on the three brothers in their capacity as beneficiaries but rather, in respect of their employment by the Taxpayer.

124    I accept those submissions. On no reading of the Trust Deed could it be said that the three brothers were the “ultimate owners of the family business”. Further, whereas the brothers may never have been treated as employees by their parents and worked in the business on the basis that they would take it over from their parents, that does not mean that for the purposes of the FBTAA they were not employees. Nor does it mean that the motor vehicles were not provided in respect of their employment as Directors.

125    The Commissioner refers to the Tribunal’s findings in relation to an argument by the Taxpayer before the Tribunal, that the provision of the motor vehicles was an exercise of power which permitted the Taxpayer as Trustee to provide an eligible beneficiary with access to trust property such as motor vehicles or as distribution under the Trust.

126    On that point, the Commissioner refers to the observation by the Tribunal that, “… there is limited evidence of a decision being made by the Trust to supply the motor vehicles to the Directors in their capacity as beneficiaries, and the value of the private use of the property was not recorded in any resolutions or in the accounts as a distribution to the individual brothers.”: R [75].

127    Further, the Tribunal found that the expenses associated with the private use of the motor vehicles was paid for by trust distributions to the Mother as a beneficiary as part of a long-standing family practice of using that account to pay all manner of expenses of family members (not just of the brothers, and not just for the motor vehicles). To the extent there was a trust distribution in relation to the motor vehicles, it was made to the Mother.

128    The Commissioner also refers to the Tribunal’s finding that:

(a)    The brothers did not receive a salary, wages or Directors fees;

(b)    The Trust made no distributions to the brothers individually over the years in question with distributions being made instead to each brother’s family trust;

(c)    The benefits in question were not attributed to the brothers’ individual beneficiary accounts;

(d)    Each brother was able to instruct the Taxpayer’s financial officers to make distributions into their own beneficiary accounts; and

(e)    The passages of Mr Smith’s evidence set out by the Tribunal: at R [76], [77] where Mr Smith said, in part:

The overriding principle agreed by my brothers and me as in over the long term we should share equally in the profits of [the applicant’s] business …”; and

We regard ourselves as the owners of the family business and the persons ultimately entitle (sic) to the profits of the business.

129    Still further, there is no doubt that on the facts found by the Tribunal, all three brothers devote their whole life to the running of the business and that it was accepted as between the parties that each Director used the motor vehicles allocated to him for business and personal use during the relevant FBT years.

130    The Delegation of Authority Policy, to which I have referred above, contains a number of definitions in clause 1. Within that clause, the three brothers are defined as “Executive Directors”.

131    So too, “Authorities Levels” specifies that Executive Directors have a lower level of authority than the Board of Directors which is comprised of the Executive Directors: see also cl 3.4.

132    I accept the Commissioner’s submissions that the Tribunal erred in finding that the three brothers were in positions analogous to the directors in J & G Knowles for the following reasons.

133    First, it is difficult to understand why the subjective view of the brothers or for that matter their motivation, is relevant. The question of whether an employee receives a benefit “in respect of” that employee’s employment is a question of fact to be determined objectively and for those facts then to be considered against the terms of the FBTAA: see also the observation by Kiefel CJ, Keane and Edelman JJ in Personnel at [58], [66].

134    Second, there was no question of any subjective belief or motivation on the part of the directors in J & G Knowles being considered as a relevant consideration. Whereas the Tribunal in that matter determined that the directors were not owners, there is no suggestion in the Full Court’s reasons that the subjective views of the directors as to whether they were owners or not was relevant, nor was there any consideration of the directors “motivation”.

135    Further, although the Tribunal referred to certain provisions of the Trust Deed, an analysis of the Trust Deed reveals a number of provisions in addition to those to which the Tribunal referred, specifically in relation to the powers of the Trustee.

136    Clause 6(j) empowers the Trustee:

To employ or concur in employment at such salary as the Trustee shall think fit any person … (including a director of the Trustee where the Trustee is a company) as Manager of the said business …

And

In the event of a director of the Trustee being engaged as the Manager or as a servant or employee in any such business such director may receive the remuneration attaching to his office or employment without being liable to account for the same.

137    The distinction in cl 6(j) between “Manager” and “a servant or employee” is one directed at the position occupied by the director within the business and does not mean that a director occupying a position of Manager is, by virtue of occupying the position, thereby not an employee of the business.

138    Clause 6(l)(vii) also empowers the Trustee in relation to any business or businesses it may carry on:

to decide as to the hiring or employment of any person or persons therein including any director of the Trustee or some or one of them at such salary or remuneration as the Trustee shall think proper …

139    In R v Postmaster-General (1876) 1 QBD 658 at 663-664 Blackburn J held that “remuneration” encompasses any form of consideration for services – whether or not it takes the form of actual payment. On appeal, the Court of Appeal confirmed that what matters is not the receipt of money, but the entitlement to it or performance of work in exchange for some form of consideration: R v Postmaster-General (1838) 3 QBD 28.

140    Similarly, in Perrot v Supplementary Benefits Commission [1980] 3 All ER 110, the Court held that one can be engaged in remunerative full-time work regardless of whether a profit is made, or if remuneration is received at all. The key consideration is the character of the work performed, not whether payment was actually rendered.

141    So it is that cls 6(j) and 6(l)(vii) confers a broad discretion on the Trustee to engage individuals – including directors – as Manager of the business or as servant or employee of the business. In the event of a director being engaged as Manager or as a servant or employee, the director may receive the remuneration attaching to his office or employment. Remuneration is not limited to a payment by way of salary or wages such that there is no requirement for a director, when engaged as Manager or as a servant or employee, to be paid a salary or wage.

142    Further, Article 97 of the Taxpayer’s Constitution: second witness statement of Mr Smith dated 12 April 2023 annexure YS-2 provides:

The remuneration of a Managing Director and of any other executive Director shall subject to any resolution of a General Meeting from time to time be fixed by the Directors and may be by way of a fixed salary or of commission on dividends profits or turnover of the Company or of any corporation in which the Company is interested or by participation in any such profits or by way of pension or retiring allowance or by any or all of those modes.

143    I accept there is no resolution to this effect, however the clauses of both the Taxpayer’s Constitution and the Trust Deed to which I have referred are relevant to the submissions made by the Taxpayer that on the facts as found, the Tribunal must necessarily have concluded that a sufficient or material relationship did not exist between the brothers’ employment and the provision of the benefit.

144    As to the statutory definition of the phrase “in respect of” the employment of an employee, the phrase is used in a number of locations in the FBTAA, but primarily for the purposes of this matter, ss 7(1), 137(1)(b) and 138B. It is defined in s 136(1) in the following terms:

in respect of, in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

145    I have set out the relevant terms of ss 7(1) and 137(1)(b) above.

146    Section 138B provides:

A reference in this Act to a benefit provided in respect of the employment of an employee is a reference to a benefit provided, or originally provided, as the case may be, in respect of that employment.

147    The question is whether the benefit comprised of the supply and exclusive, personal use of motor vehicles was “by reason of, virtue of, or for or in relation directly or indirectly” to, the employment of the brothers: ss 136(1), 7(1) and 137(1)(b).

148    Applying J & G Knowles, that question is determined by whether there is a sufficient or material relationship rather than a causal connection or relationship between the benefit and employment.

149    The Taxpayer submits that even if the Tribunal erred in placing any reliance upon J & G Knowles, that does not establish that on the facts found and the uncontroverted evidence, that it was not open to the Tribunal to conclude that a sufficient or material relationship did not exist.

150    I do not accept that submission. On the facts as found by the Tribunal and on the uncontroverted evidence only one conclusion was open to the Tribunal. Applying the ordinary meaning of the words in the definition of “in respect of”, the personal and exclusive use of the motor vehicles arose: “by reason of”, alternatively “by virtue of”, alternatively “in relation directly to”, alternatively “indirectly to”, the employment of the brothers as employees in the business of the Trust.

151    It follows that grounds 3 and 4 succeed and that the answer to the fifth question of law is that on the facts as found by the Tribunal and/or the uncontroverted evidence, the non-cash benefits conferred on each of the three Directors were provided to the individuals “in respect of the employment of an employee” within the meaning of the FBTAA.

Conclusion

152    It is for these reasons that the appeal must be allowed and there will be orders accordingly.

153    Pursuant to s 44(4) of the AAT Act, the Court may make such orders as it thinks appropriate by reason of its decision.

154    The orders of the Court will include an order setting aside the Tribunal’s decision, affirming the objection decision, and dismissing the Taxpayer’s application for review.

155    When the parties were informed that this decision was going to be delivered, they responded that by consent, there be no order as to costs. That consent position will be reflected in the orders.

Associate:

Dated:    5 June 2025