Federal Court of Australia

Carbery v Fire Rescue Victoria [2026] FCA 1488

ORDERS

THE COURT ORDERS THAT:

1.    The separate question be answered as follows:

Pursuant to ss 23 and 24 of the Fringe Benefits Tax Assessment Act 1986 (Cth), what is the taxable value of the payments of member contributions made to the United Firefighters’ Union of Australia – Victorian Branch Discretionary Trust (Discretionary Trust) in the period from 1 January 2023 to 1 October 2025 in respect of FRV employee members of that Discretionary Trust?

Answer: 28.4% of the amount (inclusive of GST) of those contributions.

2.    The parties must confer in an endeavour to reach agreement as to the form of consequential orders by 4.00 pm on 16 October 2026.

3.    If the parties are unable to agree on a form of orders, they shall each provide their proposed orders by 4.00 pm on 16 October 2026, accompanied by short submissions limited to no more than three pages, minimum 12-point typeface, one and a half line spacing.

4.    In the event that order 3 applies, the proceeding is listed for mention at 9.30 am on 30 October 2026.

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

ORDERS

THE COURT ORDERS THAT:

1.    The separate question be answered as follows:

Pursuant to ss 23 and 24 of the Fringe Benefits Tax Assessment Act 1986 (Cth), what is the taxable value of the payments of member contributions made to the United Firefighters’ Union of Australia – Victorian Branch Discretionary Trust (Discretionary Trust) in the period from 1 January 2023 to 1 October 2025 in respect of FRV employee members of that Discretionary Trust?

Answer: 28.4% of the amount (inclusive of GST) of those contributions.

2.    The parties must confer in an endeavour to reach agreement as to the form of consequential orders by 4.00 pm on 16 October 2026.

3.    If the parties are unable to agree on a form of orders, they shall each provide their proposed orders by 4.00 pm on 16 October 2026, accompanied by short submissions limited to no more than three pages, minimum 12-point typeface, one and a half line spacing.

4.    In the event that order 3 applies, the proceeding is listed for mention at 9.30 am on 30 October 2026.

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

ORDERS

THE COURT ORDERS THAT:

1.    The parties must confer in an endeavour to reach agreement as to the form of consequential orders by 4.00 pm on 16 October 2026.

2.    If the parties are unable to agree on a form of orders, they shall each provide their proposed orders by 4.00 pm on 16 October 2026 accompanied by short submissions limited to no more than three pages, minimum 12-point typeface, one and a half line spacing.

3.    In the event that order 2 applies, the proceeding is listed for mention at 9.30 am on 30 October 2026.

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    Three related proceedings have been commenced. They raise a common issue: the taxable value, as determined by ss 23 and 24 of the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act), of member contributions paid by firefighters to a scheme known as the United Firefighters’ Union of Australia – Victorian Branch Discretionary Trust between 1 January 2023 and 1 October 2025.

2    Fire Rescue Victoria (FRV) is the employer. In the relevant years, pursuant to Enterprise Bargaining Agreements (EBAs) and orders made in the Fair Work Commission (FWC), FRV was obliged to reimburse to firefighters the cost of personal income protection insurance for employees in certain classifications. The amount was initially $48 per week which increased to $50.43 and then $55.22 per week. FRV calculated and reported to the Commissioner of Taxation the amount of reportable fringe benefits for its employees based on the amounts reimbursed and its assessment of the otherwise deductible rule at s 24 of the FBT Act. FRV calculated a relatively small percentage as otherwise deductible which, in the case of Robin James Carbery, who was the employee identified as a test case, resulted in the issue of an income statement from the Commissioner that, for the year ended 30 June 2024, he had been the beneficiary of “Reportable fringe benefits-taxable employer status amount” of $5,569.51. This adversely affected Mr Carbery in two ways: (1) it increased his taxable income with the consequence of reducing his entitlement to a Family Tax Benefit; and (2) increased his child support payment obligation.

3    Mr Carbery commenced proceeding VID 249 of 2025 on 5 March 2025 against FRV. He claims declaratory relief to the effect that FRV wrongly calculated his reportable fringe benefits and consequential relief that FRV be required to take steps to advise the Commissioner of the erroneous calculation. His core contention is that correctly assessed the reportable fringe benefits amount is nil. For convenience I refer to this as the Carbery proceeding.

4    Initially, FRV applied to dismiss the Carbery proceeding as not raising a justiciable issue; the reason being that FRV did not have any interest in opposing the relief sought, as success by Mr Carbery would reduce the liability of FRV. I dismissed that application: Carbery v Fire Rescue Victoria [2025] FCA 948; (2025) 189 ALD 235. A broader dispute then emerged. FRV commenced proceeding VID 1368 of 2025 on 14 October 2025, against the United Firefighters’ Union of Australia – Victorian Branch and Alternative Risk Management Services Pty Ltd (ARMS). Very broadly, FRV claimed the Union engaged in misleading or deceptive conduct by representing that if FRV agreed to the establishment of the scheme as a new form of income protection cover for firefighters for the purposes of satisfying an EBA, doing so would not increase FRV’s tax liability. The representations were misleading because inter alia the result of the scheme was to substantially increase the liability of FRV for fringe benefits tax. But for the representations, FRV would not have agreed to the scheme. As against ARM, FRV sought restitution of monies paid under mistake of fact and/or law. I refer to this as the FRV proceeding.

5    FRV self-assessed for FBT liability for the 2024 year. On 16 December 2025, FRV lodged with the Commissioner an objection to the self-assessment. On 24 February 2026, FRV issued the Commissioner with a notice under s 14ZYA of the Taxation Administration Act 1953 (Cth) (TAA), which required the Commissioner to decide the objection within 60 days. The Commissioner did not make an objection decision within that period and accordingly is taken to have decided to disallow the objection. On 7 May 2026, FRV commenced proceeding VID 458 of 2026, being an appeal under s 14ZZ of the TAA. FRV contended that the objection decision should be set aside on the basis that the taxable value of fringe benefits provided by it to its employees in the 2024 income year pursuant to the scheme was nil by operation of the otherwise deductible rule in s 24 of the FBT Act. That is the contributions having been made to provide employees with income protection benefits. I refer to this as the Part IVC proceeding.

6    On 3 June 2026, I made orders for a separate question to be heard and determined in each of the Carbery proceeding and the FRV proceeding pursuant to r 30.1 of the Federal Court Rules 2011 (Cth). The question is:

Pursuant to ss 23 and 24 of the Fringe Benefits Tax Assessment Act 1986 (Cth), what is the taxable value of the payments of member contributions made to the United Firefighters’ Union of Australia - Victorian Branch Discretionary Trust (Discretionary Trust) in the period from 1 January 2023 to 1 October 2025 in respect of FRV employee members of that Discretionary Trust?

7    I did not make a separate question order in the Part IVC proceeding. Rather, having recited that the taxable value of the payments made for member contributions pursuant to the scheme is an issue that arises in each proceeding, I ordered that the trial in the Part IVC proceeding be listed for a joint hearing and that the evidence given in each proceeding is to stand as the evidence in the others. The obvious effect was to bind the parties in each proceeding to the outcome of the separate question determination.

8    Shortly prior to the scheduled trial, FRV and the Commissioner reached agreement to narrow the issues in the Part IVC proceeding by accepting that the otherwise deductible percentage for the contributions in issue for the period 1 January 2023 to 1 October 2025 is 71.6%. FRV agreed not to contend for a higher percentage, and the Commissioner agreed not to contend for a lower percentage. The consequence of that agreement is that the answer to the separate question is 28.4%. Mr Carbery, as was his right, took a different view and the trial of the separate question proceeded, although it should be observed very efficiently and based on largely agreed evidence.

9    For the reasons that follow, I answer the separate question as 28.4% of the amount (inclusive of GST) of those contributions. That percentage accepts that the otherwise deductible amount is 71.6%.

Background

10    Income protection is an important matter for the Union and its members. FRV is the statutory successor to earlier fire authorities in Victoria, having commenced operation on 1 July 2020. In May 2018, the Union first made application to the FWC under then applicable EBAs seeking an order that the relevant employer reimburse employee members in respect of premiums payable for income protection insurance. In October 2018, the FWC made an order for employed firefighters to be reimbursed for the cost of income protection insurance premiums. Amongst other things, the order stated that employees who have or take out income protection insurance will be entitled to reimbursement of the premium up to an amount of $48 per week. Further, that the order satisfied the requirements of certain clauses in pending EBAs then before the FWC, which required the reimbursement arrangement to be implemented.

11    The presently relevant EBA is the Fire Rescue Victoria Operational Employees Interim Enterprise Agreement 2020, which provides at clauses 48 and 49:

Accident and Illness Policy

FRV and UFU will consult and implement an agreed income protection policy/scheme for all employees covered under this Division. This income protection policy/scheme will commence from July 2017.

Ambulance membership

FRV will arrange for and meet all costs of membership of the ambulance service for each employee.

12    In 2018, the Union and FRV agreed to an income protection arrangement known as the Victorian Firefighters Protect Injury & Sickness Policy, provided by ATC Insurance Solutions Pty Ltd. That policy was in force until 1 January 2023.

13    In October 2022, the FWC updated the orders made in 2018 to provide for, amongst other things, an increase in the reimbursement entitlement to $50.43 per week, or such other amount as is agreed. In November 2023, the FWC further increased the weekly reimbursement allowance to $55.22 with effect from 16 June 2023.

14    In December 2022, FRV and the Union agreed to adopt a new income protection arrangement with effect from 1 January 2023 through Howden Insurance Brokers (Australia) Pty Ltd, in compliance with the orders made by the FWC and the requirements of the EBA. This policy included insurance underwritten by Arch Underwriting at Lloyd’s (Australia) Pty Ltd. The effect of this arrangement was that Howden, through its subsidiary ARMS, provided income protection cover as a component of the scheme.

15    Two scheme documents are presently relevant: a Deed of Trust dated 28 December 2022, and a Product Disclosure Statement (PDS) dated 1 January 2023. The Deed creates a discretionary trust pursuant to which ARMS is the Trustee and the Union is the Advocate. Clause 2.2 of the Deed relevantly states the purpose of the Trust is to establish a scheme to mitigate and protect against “Member Risks” and to maintain funding to meet “Claims” and purchase “Insurance”.

16    These terms are defined in cl 1.1:

Claim[s] means any claim by a member against the Trust in respect of any loss which the Trust intended to meet, as outlined in the [PDS].

Insurance means the insurance obtained via the Insurance Policy.

Insurance Policy means the insurance policy or such other contract that transfers risk to a third party (in a similar manner to insurance) that is purchased by the Trust in respect of specific Member Risks and/or to meet eligible Claims at prescribed thresholds determined by the Trustee.

Member Risks means certain risks associated with the members as determined by the Trustee in consultation with the Advocate.

17    Members may be admitted at the discretion of the Trustee: cl 7.1. The Trustee will determine the amount of member contributions from time to time, having regard to the financial position and purpose of the Trust: cl 7.2. By clause 7.3:

Where Claims are not covered by insurance, the Trustee has full discretion and responsibility for assessing and determining Claims, including in relation to the negotiating, settling and payment of Claims or amounts to third parties in partial or full satisfaction of claims.

18    The Trustee is not obliged to pay a claim. By clause 9.1, the Trustee “must consider all claims made by members”, and then by clause 9.2:

Where claims are not covered by the Insurance Policy, the Trustee retains the absolute discretion as to whether to partially or wholly accept a Claim and the Trustee may impose certain terms and conditions in relation to the satisfaction of any Claims.

19    The PDS in Section 1 states that the Discretionary Trust is made up of two parts:

The Trust Cover. This is risk cover, but it is not insurance because the Trustee has discretion as to whether or not to pay a Claim and how much to pay; and

The Insurance Cover, which is insurance. A Member has a third-party beneficial interest in the Insurance Policy which is purchased by the Trustee for the Discretionary Trust and its Members.

20    It is further stated that the Trust has been established to help manage the members’ risk of loss of income, death and disability due to injury or sickness, accidental dental injuries, broken bones due to injury, and ambulance cover provided through an Ambulance Victoria family membership.

21    The Trust Cover applies “for any event, not only those events that would be covered under the insurance cover… and the Trustee will consider the claim”. As further explained, insurance cover:

Is purchased by the Trustee for the Discretionary Trust and its Members and provides cover for a Claim which is: (1) in excess of the Individual Members Deductible and the Trust Cover; and (2) subject to the Insurance Policy terms and conditions.

22    Section 3 of the PDS, which is concerned with risks, further states that:

The payment of benefits under the Trust Cover is at the absolute discretion of the Trustee which means that the Trustee may exercise its discretion not to pay a Claim.

Insurance cover component of the Discretionary Trust only comes into effect for a Claim in excess of the Individual Members Deductible and the Trust Cover.

23    Something more needs to be observed about the Trust and the Insurance. The policy effected from 1 January 2023 to 1 January 2024 is a Group Personal Accident and Sickness Policy. Under the Policy, the Trust and the members are the policy holders, and the covered persons are the declared operational members employed by FRV. The Policy provides for a range of benefits with specified limits, including accidental death, surgery as a result of bodily injury or sickness, bodily injury, temporary disablement (total or partial), rehabilitation, return to work, financial advice, dependent child assistance, surviving spouse, partner retraining, and funeral expenses.

24    There is evidence that the single claim limit for the Trust Cover is $200,000 and claims exceeding that are covered by the Insurance. That was not so under the policy effected in January 2023. However, in 2024 the policies operated as excess loss insurance, applicable only if the event limits under the Trust are exceeded. As an example, the policy quotation schedule for the group policy that commenced on 8 March 2024 states:

Discretionary Trust Condition

Notwithstanding anything to the contrary in the POLICY, it is understood and agreed that:

1.    This POLICY operates as excess of loss insurance to a Discretionary Trust Scheme, namely the United Firefighters Union of Australia - Victoria Branch Discretionary Trust; and

2.     The following Discretionary Trust Deductibles apply to this POLICY:

(a)    SINGLE EVENT LIMIT which applies on a per COVERED PERSON basis, to all claims arising out of any one ACCIDENT. The SINGLE EVENT LIMIT will be paid for by the POLICY HOLDER, subject to the TRUST AGGREGATE; and

(b)    The TRUST AGGREGATE which is the aggregate amount of coverage provided under the Discretionary Trust.

3.    OUR liability under this POLICY will attach only in the event that:

(a)     the SINGLE EVENT LIMIT is exceeded; and/or

(b)     the TRUST AGGREGATE is eroded,

upon which this POLICY will provide cover for all eligible claims, subject to its terms, conditions and limits.

4. For the purposes of this endorsement, the following definitions apply:

(a)     SINGLE EVENT LIMIT means the amount specified in the SCHEDULE.

(b)     TRUST AGGREGATE means the amount specified in the SCHEDULE.

25    And then:

DISCRETIONARY TRUST DEDUCTIBLES

SINGLE EVENT LIMIT: As per the monthly Trust Statement provided by the POLICY HOLDER’S broker.

TRUST AGGREGATE: As per the monthly Trust Statement provided by the POLICY HOLDER’S broker.

26    Thus, the benefits provided in the Insurance Policy are conditional upon the Trustee accepting a Claim in its absolute discretion. Fortunately, this is not a case that requires determination of whether the PDS, when read with the Deed, is consistent with the excess insurance. That is because, before a member is entitled to the benefit of the Insurance Policy, the Trustee must accept a claim and make a payment of $200,000.

27    Dealing next with the member contributions and the reimbursement paid by FRV, the effect of the arrangements is neatly summarised in the statement of claim in the Carbery proceeding:

If a firefighter is admitted to membership of the Discretionary Trust:

(i)    The firefighter commits to paying a weekly contribution which FRV is authorised to pay on their behalf.

(ii)     Monthly, Howden or ARMS sends FRV an invoice for the amount due from the enrolled firefighters which is then directly paid to ARMS.

(iii)     FRV reimburses enrolled firefighters for the contribution made on their behalf which appears on their payslips as paid from their wages before tax.

(iv)    A firefighter who wants to make a claim does so through Claims X Pty Ltd, a subsidiary of Howden.

(v)     ARMS has in place a policy of excess liability insurance and pays an allowed claim directly to the firefighter using funds from trust contributions topped up with payments from the insurer where the allowed amount exceeds the excess threshold of the insurance policy.

28    In the 2024 year, FRV paid $10,279,618 of contributions to the Trustee in respect of the membership of its employees. In the FBT return for the 2024 year, the taxable value of the contributions reported was $11,162,392, which was then reduced by $540,513 representing the portion paid by the Trustee as premiums for income protection insurance. In the Part IVC proceeding notice of appeal, FRV advanced alternative contentions in support of its objection. First, by application of the otherwise deductible rule at s 24 of the FBT Act, the taxable value of the contributions to the Trust was nil because they were made for the provision of income protection insurance to the employees. Second, that the taxable value of the contributions was reduced by a greater amount than that allowed for in the FBT assessment.

The evidence

29    The parties agreed a court book of common documents and four affidavits were read without objection. For Mr Carbery, the affidavits of Robin Carbery made on 15 May 2026, Matthew Cavallaro made on 18 May 2026, limited to [1] – [5] and [10] – [32], and Laura Campanaro made on 18 May 2026 limited to [1] – [20], [50] – [51], [61] – [68], [74] – [75] and [114] – [118]. For ARMS, the affidavit of Craig Harms of 17 July 2026. Mr Harms was required for brief cross examination for Mr Carbery and the Union.

30    The evidence of Mr Harms explains the agreement reached between FRV and the Commissioner in the Part IVC proceeding. He is the head of Alternative Risk Management Services at Howden. He has more than 45 years of experience in professional services, including 26 years’ experience in managing discretionary trust products. He commenced his present employment in February 2021. His evidence crisply explained the operation of the scheme and the benefits available to members.

31    The Trust coverage provided by the Trustee to members pursuant to the scheme provides a range of benefits which he listed as:

(a)    loss of income;

(b)    death coverage;

(c)    disability coverage;

(d)    accidental dental coverage;

(e)    broken bones coverage;

(f)    funeral expenses;

(g)    ambulance subscription reimbursements;

(h)    private health insurance premium subsidies and hospital excesses;

(i)    payment of private legal expense insurance premiums; and

(j)    payment of spousal life insurance premiums.

32    He explained the Trust Cover as:

[A] form of discretionary risk cover under which a member could claim payment from the Trust upon experiencing a covered event which was the subject of a claim under the Trust deed. The Trust cover was not a traditional insurance product, because whether the claim made by the member was accepted by the Trustee was a matter within the Trustee’s discretion. However, the Trustee was obliged to exercise its powers consistently with the Trust objects…

The Trust cover was capped at a single claim limit of $200,000. Any additional amounts to which the member was entitled were met through an excess layer of insurance coverage taken out by the Trustee.

33    Next, he explained that with effect from 1 January 2024, ARMS entered into an excess insurance policy with Arch on behalf of itself and the members, which was later extended to 8 March 2024 and later by further extensions to March 2026. His evidence continued:

The first Arch policy was a personal accident and sickness insurance policy placed with [Arch]. It provided cover for claims exceeding the Trust cover. Unlike the Trust cover, the insurance cover was not subject to the Trustee’s discretion and operated as a conventional insurance contract.

34    The second sentence in that paragraph, for the reasons earlier adverted to, is not consistent with the excess clauses in the Insurance Policy. In any event, that can be put aside. He further explained that member contributions were pooled in the Trust and then applied to:

(a)    meet claims under the Trust cover;

(b)    purchase the excess insurance;

(c)    purchase the spousal life and legal expenses insurance cover;

(d)    reimburse the costs of ambulance cover;

(e)    subsidise individual members’ private health insurance premiums and excesses;

(f)    fund an alcohol and drug awareness app called “well connect” for the benefit of members;

(g)    pay brokers fees; and

(h)    meet the costs of establishing and running the Trust and associated disbursements.

35    In January 2023, he undertook some investigations to determine the breakdown of member contributions concerning the income protection component of the scheme. The result for the Insurance Policy premium was that 62% was for death and capital benefits, 37% was for loss of income benefits and 1% was for other benefits. He also provided a breakdown of the Trust expenditure for the period 1 January 2023 to 13 July 2026:

36    Mr Harms confirmed in cross-examination that which was apparent from the Trust’s financial accounts. As at 30 September and 31 October 2025, the balance sheets each recorded liability provisions for claims and total equity of $3,798,524.54 and $2,744,739.40. The net equity is held in cash and, when added to the claim provisions, represents the total amount available to meet claims and operating costs.

37    The evidence of Mr Harms as supported by the agreed documents was unchallenged, and I find according to it.

Resolution of the separate question

38    The issue to be resolved is narrow. Section 20 of the FBT Act is concerned with expense payment benefits and provides:

Where a person (in this section referred to as the provider):

(a)    makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b)     reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

39    It is common ground that the contributions were expense payment fringe benefits. Section 23 provides that the taxable value of an external expense payment fringe benefit is the amount of the payment or the reimbursement, as the case requires. The taxable value is reduced where the otherwise deductible rule at s 24 applies. Like most revenue law drafting, the provision is dense and subject to numerous qualifications. The essential purpose is not difficult to comprehend: if the employee had incurred the expense and would have been entitled to claim a deduction pursuant to s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97), the taxable value of the expense payment fringe benefit is reduced by that amount. The inquiry is hypothetical: John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82; (2015) 232 FCR 59 at [55], Edmonds, Logan and Pagone JJ agreeing (a case about residual benefits pursuant to s 45). See also Bechtel Australia Pty Ltd v Commissioner of Taxation [2024] FCAFC 33; (2024) 302 FCR 44 at [13], Derrington, Downes and Hespe JJ.

40    If Mr Carbery and other firefighters had made premium payments for personal income protection insurance in the relevant years, the cost of the premiums would have been deductible: Commissioner of Taxation v Smith [1981] HCA 10; (1981) 147 CLR 578 at 584 – 586. Here the contributions were not simply premiums for the risk of future loss of or reduction in income. Rather, the payment of weekly contributions also entitled the members to be considered by the Trustee for benefits under the Trust Cover in respect of other claims that were not hypothetically deductible. Similarly, the Insurance Policy provided for a range of non-deductible benefits.

41    FRV and the Commissioner submit that the extent to which the contributions were incurred in gaining or producing assessable income for the purposes of the first limb of s 8-1 of the ITAA 97, is to be determined by applying a mathematical apportionment to the amounts paid out by the Trust for income protection claims plus a proportion of the Insurance Policy premium attributable to income protection benefits, as set out in the table in Mr Harms’ affidavit evidence. The methodology derives a percentage to determine the extent to which amounts paid by the Trust between 1 January 2023 and 1 October 2025 relate to income protection claims and insurance premiums paid to Arch. FRV in written submissions in more detail explains the calculation:

(a)    adding the “Loss of income - net payments (incl. PAYG tax payments)” amount of $16,449,771.68 to 37% of the “Premiums and duties for insurance coverage for the Insurance Policy which covered income protection insurance for claims for loss of income”, being $1,422,055.36, which comes to a total of $17,871,827.04;

(b)    identifying the items relating to what FRV and the Commissioner consider can be classified as ordinary operating expenses of the Discretionary Trust, such as audit fees and bank fees, which come to a total of $3,148,636.33. It is appropriate for those items to be excluded from the calculation of the percentage, as such expenses do not directly relate to benefits of any kind provided to members of the Discretionary Trust – they are not what the contributions are paid for;

(c)    subtracting that amount of $3,148,636.33 from the total Discretionary Trust expenditure of $28,109,576.12, yielding $24,960,939.79; and

(d)    dividing the amount of $17,871,827.04 described in sub-paragraph (a) above by the amount of $24,960,939.79 described in sub-paragraph (c) above, yielding a percentage of 71.6%.

42    The 37% figure derives from an email exchange between Mr Harms and Jarrod O’Connor of Arch, which stated that this was the portion of the insurance premium attributable to loss of income benefits.

43    The calculation as represented in the Annexure to the submission is:

44    This methodology is not submitted as one of absolute precision, nor as the only approach. Rather, it is consistent with the settled apportionment approach identified by the High Court in Ronpibon Tin NL v Commissioner of Taxation (1949) 78 CLR 47, when dealing with the predecessor provision at s 51(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 36). At page 59 the Court identified two types of outgoing:

The question what expenditure is incurred in gaining or producing assessable income is reduced to a question of fact when once the legal standard or criterion is ascertained and understood. This is particularly true when the problem is to apportion outgoings which have a double aspect, outgoings that are in part attributable to the gaining of assessable income and in part to some other end or activity. It is perhaps desirable to remark that there are at least two kinds of items of expenditure that require apportionment. One kind consists in undivided items of expenditure in respect of things or services of which distinct and severable parts are devoted to gaining or producing assessable income and distinct and severable parts to some other cause. In such cases it may be possible to divide the expenditure in accordance with the applications which have been made of the things or services. The other kind of apportionable items consists in those involving a single outlay or charge which serves both objects indifferently. Of this directors' fees may be an example. With the latter kind there must be some fair and reasonable assessment of the extent of the relation of the outlay to assessable income. It is an indiscriminate sum apportionable, but hardly capable of arithmetical or ratable division because it is common to both objects.

45    Initially, FRV and the Commissioner disagreed about whether this is a case within the first or second category. However, in oral submissions, Mr de Wijn KC and Mr Patela for FRV were indifferent, as the result is the same under either.

46    Ms Pierce KC and Mr Miles for the Commissioner agreed with the apportionment approach of FRV, and the outcome.

47    Mr Harvey KC and Mr Nanlohy for ARMS appeared to assist the Court by adducing evidence from Mr Harms and otherwise made no submissions on the answer to the separate question.

48    Mr Garratt KC and Mr Germano for Mr Carbery and the Union first submits that it is no longer appropriate or expedient to answer the separate question because the effect of agreement between FRV and the Commissioner is that there was no reportable fringe benefits amount for Mr Carbery in the 2024 income year as the taxable value fell below the statutory threshold of $2,000. They submit instead that the following declaratory relief should be granted in the Carbery proceeding:

[T]hat there was no amount of reportable fringe benefits in respect of Mr Carbery for the 2024 income year in relation to contributions made in respect of Mr Carbery to Alternative Risk Management Services Pty Ltd as trustee of the United Firefighters Union of Australia – Victoria Branch Discretionary Trust.

49    And that I should declare in the FRV proceeding:

[T]he payments made by Fire Rescue Victoria to Alternative Risk Management Services Pty Ltd as trustee of the United Firefighters Union of Australia – Victoria Branch Discretionary Trust in respect of firefighter members of that Trust in the year ending 31 March 2024 did not of themselves give rise to any amount of reportable fringe benefits in respect of the firefighters concerned.

50    I reject the submission. The purpose of framing the separate question in the Carbery proceeding and the FRV proceeding (and of hearing the Part IVC proceeding concurrently) was to bind all parties to the determination of the taxable value of the external expense payment fringe benefits in issue. The extent to which the taxable value of contributions made by members were otherwise deductible remains a live issue in the FRV proceeding. The proposed declarations depart radically from the separate question and seek to avoid the central issue common to each proceeding. Also, the declaration proposed in the FRV proceeding is ambiguous in the phrase “did not of themselves”.

51    Further, Ms Pierce draws attention to Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146 at [10], to the effect that where Part IVC provides a remedy, other forms of discretionary relief will usually be withheld.

52    In the alternative, Mr Garratt developed two submissions. The first accepts that the Trust Cover includes a range of benefits that would not otherwise be deductible if claimed by Mr Carbery. Nonetheless, the submission is that the inclusion of these benefits (identified in the PDS) “of items which went beyond income protection cover, strictly defined, or which might be characterised as incidental sweeteners by Howden did not change the essential reality of the [scheme] as an income protection scheme for the employee”.

53    That submission rests on acceptance that in Ronpibon the Court “did not say apportionment is required in all cases where an outlay can be attributed to an additional purpose that would not be deductible if the outlay had been separately incurred for that purpose”, together with the observations of Deane and Sheppard JJ in Ure v Commissioner of Taxation (1981) 50 FLR 219 at 233:

One of the most difficult aspects of the problem of characterising an outgoing is the assessment of what, if any, weight is to be given to indirect objects which a taxpayer had in mind in incurring the outgoing. Such objects form part of the relevant circumstances by reference to which the problem of characterization can be applied in determining what, if any, weight should be given to them. In the ordinary case, such as, for example, where the immediate object achieved by the outgoing is the production of assessable income which is commensurate with the amount of the outgoing or where it is clear that the outgoing was for the purchase of stock-in-trade or the acquisition of services or hire of equipment used in earning assessable income, indirect objects or motives of a personal or domestic character will plainly not prevent the characterization of the outgoing as having been incurred in earning assessable income.

54    In oral submissions, Mr Garratt framed the point with commendable succinctness: the object of Mr Carbery was to obtain protection from the future risk of lost income, to which he was entitled under the EBAs and the orders made in the FWC, and simply because that came with additional benefits does not require apportionment in this case.

55    With respect, I am unable to accept the submission. It is not supported by the reference to Ure. That case concerned the deductibility of interest payments on money borrowed at commercial rates which the taxpayer lent at a modest rate to his wife and to a related company. The issue concerned the application of the second limb of s 51(1) of the ITAA 36 and whether the outgoing was of a private and domestic nature. The passage relied on addresses the proper characterisation of an outgoing that is productive of assessable income where the taxpayer, in incurring the outgoing, also had other indirect objects in mind. As recently explained in Commissioner of Taxation v Hall [2026] FCAFC 43; (2026) 315 FCR 189 at [5], the positive limb of s 8-1(1) of the ITAA 97 requires identification of the “essential character of the expenditure, rather than the subjective purpose for which an item of expenditure has been incurred”, Thawley J; McElwaine and Wheatley JJ agreeing. See also Lunney v Commissioner of Taxation [1958] HCA 5; (1958) 100 CLR 478 at 497 – 499; Automotive Invest Pty Ltd v Commissioner of Taxation [2024] HCA 36; (2024) 283 CLR 291 at [116]; and Fletcher v Commissioner of Taxation [1991] HCA 42; (1991) 173 CLR 1 at 17.

56    Here the contributions conferred on members an entitlement to make claims for member risks and (if the claim is accepted) to receive benefits that were in part not deductible under s 8-1 of the ITAA 97 as components of the Trust Cover and the Insurance Policy. The essential character of the outgoing is not a question of the indirect motive of the members. Conformably with Ronpibon it requires apportionment of the single outlay (weekly contributions) that “serves both objects indifferently”, by a “fair and reasonable assessment”. That is, there is no precise formula for apportionment, and each case depends on the particular circumstances.

57    Mr Garratt’s second submission focused in granular detail on the methodology of the apportionment calculation, by identifying eight points, though as the submission developed, one of the points repeated an earlier submission. I address the arguments seriatim.

58    First, the derived otherwise deductible percentage of 71.6% is illogical because it erroneously deploys total Trust outgoings less ordinary operating expenses, whereas the correct starting point is the outlay incurred by each member, aggregated as the total of all contributions made during the period from 1 January 2023 to 1 October 2025.

59    I do not accept the criticism. The question is what portion of the contributions is attributable to the price of acquiring the deductible benefits? The logic of the FRV calculation is to answer that question by examining how much the Trust paid out directly and indirectly for income protection benefits. The calculation commences by identifying the amounts paid in respect of loss of income claims and adding the 37% portion of the premiums paid for income protection insurance. The resulting total of $17,871,827.04 represents the cost of providing income protection benefits to members. Next, the Trust incurred costs that have been identified as ordinary operating expenses, in the sum of $3,148,636.33. This expenditure was deducted from the total Trust expenditure of $28,109,576.12, on the basis that it did not directly relate to member benefits. This resulted in a reduced figure for the total Trust expenditure. The logic that is revealed is: what did the members receive for the contributions? The answer, on an aggregated basis, separates the deductible income protection benefits from the non-deductible benefits by way of reasonable, rather than perfect, apportionment. The criticism of Mr Garratt which focuses on the outlay as incurred by each member obscures the apportionment inquiry and overlooks the statutory task at s 8-1 of the ITAA 97.

60    Secondly, the methodology accepts that 37% of the premiums paid for the excess insurance was attributable to loss of income benefits, with the balance attributable to death and capital benefits (62%) and other benefits (1%). Mr Garratt submits that the evidence of Mr Harms does not explain how the 37% was calculated. I reject that submission for two reasons: first, that was his evidence as supported by the attached email correspondence; and second, he was not cross-examined on it.

61    Thirdly, there is no allowance for fixed and variable costs of providing lost income cover. While that is true, it is not contrary to the Ronpibon fair and reasonable assessment. This is a minutiae criticism, which does not undermine the methodology.

62    Fourthly, that the numerator used in the calculation did not include the revenue surplus of $3,798,524.54 and $2,744,739.40 in September and October 2025, respectively. There is no merit in the submission: that a surplus is available to meet future claims tells us nothing about the apportionment between deductible and non-deductible benefits in respect of claims met in the relevant period.

63    Fifthly, the evidence of Mr Harms references ambulance subscription reimbursements, which is a separate obligation of FRV under the EBAs. This is not income protection and should have been excluded. The short answer is that ambulance subscription claims, in the sum of $646,956.64, were separately itemised in the table contained in Mr Harms’ evidence and formed part of the total expenses of $28,109,576.12 as a non-deductible component of the calculation.

64    The sixth point loops back to the member objective submission and has been answered above.

65    Seventhly, the methodology should have considered deductibility at the time of the contributions, without the benefit of hindsight evidence over a longer period. To an extent that is true, but irrespective of when the calculation is undertaken, the apportionment exercise must necessarily draw on the history of the financial transactions of the Trust. I am not satisfied that the period examined was so unusual as to fail to present a reasonable picture of deductibility in the 2024 income year.

66    The last point focuses on the varying calculations of FRV over the course of the proceeding and whether the figure now settled on is reliable. FRV is criticised for not adducing independent expert evidence from an actuary or an accountant. I accept that could have been done, but it is no reason to reject the evidence that I have when Mr Harms was not challenged in cross-examination and the FBT Act requires an employer to self-assess the expense payment fringe benefits for each year. I have concluded that the methodology now adopted conforms with Ronpibon.

67    Having disposed of those criticisms, I am satisfied on the evidence of Mr Harms that the methodology of FRV results in a reasonable and fair apportionment of the contributions by members of the scheme between 1 January 2023 and 1 October 2025, and as such the taxable value of the contributions is as agreed between FRV and the Commissioner.

68    For these reasons, the answer to the separate question is that the taxable value of the member contributions between 1 January 2023 and 1 October 2025 is 28.4% inclusive of GST.

Associate:

Dated:    8 October 2026