This article provides an update on key developments in taxation law for accountants and participants in the tax advice industry for late June. This update in summary covers:
- High Court's Grant of Special Leave for Bendel Decision
- Provision of Motor Vehicles to Directors of Corporate Trustee assessed as Fringe Benefits
- Principal Place of Residence Exemption rejected for Residential Property with a Commercial Premise.
1 - Bendel Decision - High Court Grants Special Leave to ATO
The High Court has granted special leave to the ATO to hear its appeal against the Full Federal Court decision in Commissioner of Taxation v Bendel [2025] FCAFC 15. The Deputy Commissioner has also released an update regarding the ATO's position on Bendel. However, it differs little from the one covered in our update last month.
In short, the Deputy Commissioner answers the following queries:
- How long will the process take? - The Deputy Commissioner notes that given the way the High Court works, the ATO anticipates that the "whole process could take a little while". Further, if the appeal fails, the ATO will endeavour to publish the decision impact statement as soon as possible.
- Will the Commissioner grant a deferral to lodgement of tax returns of affected private companies? - The ATO will not grant a blanket extension of time for companies affected by the decision to lodge their tax returns while the High Court appeal is underway as "it's not usual practice to grant lodgement deferrals as a matter progresses through the Courts".
- Will the ATO use its discretion in s109RB to disregard any deemed dividends if they are successful to the High Court? - No, the update notes that section 109RB allows the Commissioner to consider exercising the discretion to disregard the operation of Div 7A or to allow a deemed dividend to be franked where a deemed dividend arose if there's been a honest mistake or inadvertent omission.
- Should taxpayers convert UPEs to loans and place them on complying term loans pending the High Court Decision? - The Deputy Commissioner reiterates that taxpayers will need to consider their circumstances and make their own decision pending the appeal process. Further, "where a UPE is not converted into a complying Div 7A loan, taxpayers face the prospect that other integrity provisions may apply, for example Subdivision EA and section 100A."
2 - FCT v SEPL Pty Ltd as Trustee of the SFT Trust [2025 FCA 581] - Provision of Luxury Motor Vehicles to Directors of Corporate Trustee considered Fringe Benefits
In this case, the Federal Court held that 3 brothers who controlled a family business through a family trust were employees of the taxpayer trustee company with the non-cash benefits provided to them being characterised as fringe benefits.
The taxpayer was the corporate trustee of a family discretionary trust that carried on several profitable businesses. The beneficiaries included three brothers who were directors of the corporate trustee. In the 2016-2020 FBT years, the brothers acquired 40 luxury vehicles of which they had exclusive use of. The Commissioner assessed the trust to additional FBT on the value of the luxury vehicles. The corporate trustee objected to this, stating that the brothers were not employees and the exclusive use of the vehicles was not in respect of employment. The Federal Court allowed the ATO's appeal.
The Federal Court applied section 137 (1) which broadens the definition of employment under the Fringe Benefits Tax Assessment Act 1986. Notably, each of the brothers:
- received a benefit, through the exclusive use of the motor vehicles, provided by the corporate trustee;
- but for s137, they would not have been regarded as having been provided in respect of their employment. The Court was satisfied that the benefit (the motor vehicles) were provided to each of the brothers in respect of their employment;
- and if the benefit was provided to them by the trustee by way of a cash payment to the brothers, the payment would have constituted cash payment of their salary or wages.
Due to this, the brothers were treated as employees under s136(1).
The Court also found that the benefits were provided in respect of their employment. The main issue here was whether there is a sufficient or material relationship, rather than a causal connection or relationship, between the provision of the motor vehicles and employment. The Court found that on the evidence supplied, the provision of the vehicles was conferred on the brothers in respect of their employment as an employee.
3 - Simich v Chief Commissioner of State Revenue- NSW Principal Place of Residence Exemption Unavailable
The NSW Supreme Court upheld an earlier Tribunal decision finding that the principal place of residence exemption under Section 6 of Schedule 1A of the Land Tax Management Act 1956 was unavailable, given the proposed use of part of the property would have been unlawful.
The taxpayer purchased the property in question in December 2020 with the intention of constructing a 4-storey residence on the land with space on the ground floor for commercial use. The taxpayer intended that the commercial spaces be left vacant. During the 2021 to 2022 land tax years in which the land was undergoing construction, the taxpayer was assessed for land tax. They objected on the basis that they intended to use it as the principal place of residence under Section 6 Schedule 1A of the LTMA.
The Court had agreed with the Tribunal's view that although the taxpayer intended to leave the commercial spaces vacant, they would be using and occupying those spaces for residential purposes as part of their home. Further, since the parties agreed that the residential use of the commercially zoned areas was unlawful, any such intended use was unlawful under section 6(2)(c) and the principal residence exemption did not apply.
However, in obiter, the Court noted that if the parties had not agreed on the unlawfulness of the residential use of the commercial space, the Tribunal's reasoning may have been incorrect.
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
