Changes that apply from 1 July 2025
In this month’s Round Up, we looked at a Federal Court decision dealing with the issue whether non cash benefits provided to some individuals should fall within the scope of the FBT system as well as other practical matters dealing with situations like this.
We also discussed the new thresholds for income tax, GST and luxury car tax that apply from 1 July 2025 and considered some of the other common issues that come up when you are looking at whether the car limit applies.
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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director) and Amy Yan (Associate Tax Director) bring you:
Bendel update
On 12 June 2025, the High Court of Australia granted the ATO special leave to appeal the decision in the Bendel case which deals with the issue of whether unpaid distributions owed by a trust to a private company should be treated as loans for Division 7A purposes.
As published in the Interim Decision Impact Statement, the ATO will continue to administer the law in accordance with the views that are set out in TD 2022/11 while waiting for the High Court’s decision.
The ATO will not be granting a blanket extension of time for affected companies for lodgments of tax returns during this period.
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Changes to car thresholds from 1 July 2025
The ATO is reminding taxpayers of the new car thresholds that apply for the 2025-26 financial year.
The car limit for tax depreciation and GST credit purposes for 2025–26 is $69,674. This is the highest value you can use to calculate depreciation on a car where the car is used for business or other income producing purposes, and the car is first used or leased in the 2025-26 income year.
Where the purchase price of the car is over the car limit, the maximum GST credits that can be claimed (unless a specific exception applies) is 1/11th of the car limit. For 2025–26, this is $6,334 (1/11 × $69,674).
The thresholds for luxury car tax (LCT) also change for the 2025-26 year and will be:
- $91,387 for fuel-efficient vehicles
- $80,567 for all other vehicles that fall within the scope of the LCT rules
From 1 July 2025 the definition of a fuel-efficient vehicle will also change, which means that a car will only qualify for the higher LCT threshold if it has a fuel consumption that does not exceed 3.5 litres per 100km (this was 7 litres per 100km before 1 July 2025). The indexation rates applying to the thresholds for fuel-efficient vehicles and other vehicles will be aligned.
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FBT on luxury cars provided to directors
The Federal Court has allowed the ATO’s appeal of the AAT decision in BQKD v FC of T [2024] AATA 1796, holding that the non-cash benefits provided to the directors of a trustee company were provided in respect of their employment and this could trigger fringe benefits tax (FBT).
The company in question acted as corporate trustee for a trust which operated a family business, with three brothers acting as directors and shareholders of the corporate trust. They were also potential beneficiaries of the trust.
There was no written employment contract entered into by the three brothers and the trust and the trust didn’t pay them any cash salary or wages for work they performed in the business. The trust tended to make distributions to family trusts controlled by the brothers each year. The trust also made superannuation contributions in respect of the brothers over the years.
The company owned more than 40 luxury and high performance motor vehicles and made these available for the three brothers for both private and business use. For the 2016 to 2020 FBT years, the Commissioner assessed the trustee for FBT in connection with the use of these vehicles.
At first instance, in BQKD and FCT [2024] AATA 1796, the AAT concluded that the directors were not employees of the trust under general principles and that the non-cash benefits were not subject to FBT. Further, the AAT held that the benefits were not provided in connection with employment because the brothers were accessing the benefits on the basis that they genuinely believed they were entitled to them as beneficiaries.
The Commissioner appealed the decision to the Federal Court. The Federal Court allowed the Commissioner’s appeal, finding that the FBT legislation contains some specific provisions which need to be considered in determining whether an individual is classified as an employee for FBT purposes. The key provision in this case was section 137(1) of the FBT Act, which can apply to treat someone as an employee for FBT purposes even if they don’t receive any cash salary or wages, but they receive non-cash benefits which would be classified as salary or wages if provided in cash form.
The Federal Court found that the brothers were directors of the trustee company, they performed a significant amount of work in the business and received benefits in connection with this work. As a result, they should be treated as employees for FBT purposes and the objective evidence indicating that the benefits were provided to them in connection with this deemed employment relationship. The Court confirmed that this requires an analysis of objective evidence, rather than looking at the subjective views of the brothers.
This is a common issue, especially when it comes to private groups where the owners might operate in a number of different capacities. We often need to consider whether someone is receiving a benefit in their capacity as an employee or director or in their capacity as a shareholder or beneficiary of the entity, which can then impact on whether the benefit is subject to FBT or Division 7A and can also impact on deductions and GST credits that can be claimed.
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