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01 Mar 077 Repayment of loan was a taxable fringe benefit - Slade Bloodstock

The Federal Court (Heerey J) has upheld the Commissioner's appeal against a decision of the AAT, and held that repayments of a loan made by the taxpayer company to its sole shareholders (Mr and Mrs Slade) were liable to fringe benefits tax. The shareholders were the sole employees of the company and had entered into an agreement with the company that it would "make repayments to any party directed by the shareholder, including but not limited to payments on behalf of the shareholder for loans, credit cards, mortgages, school fees and any other payee directed by the shareholder". Mr and Mrs Slade received no other remuneration.

The Court noted that "is now not in dispute that by reason of the repayments Mr and Mrs Slade received a "benefit" within the meaning of para (c) of the definition of that term in s 136(1) of the FBT Assessment Act. Whilst acknowledging that the payments were made in respect of Mr and Mrs Slade's position as creditors of the company, the Court said, at paras 17-18:

"It is not a conclusive answer to the question whether a benefit was "in respect of" the employment to say that it was "in respect of" something else. Here the repayments were also by reason of, by virtue of, or for, or in relation, directly or indirectly to the employment. Mr and Mrs Slade received no other remuneration. There were no other employees. The Company’s business could not have operated without their work as employees.

18 Moreover, the terms of the written agreement...explicitly contemplate that one of the reasons Mr and Mrs Slade are to get repayment of their loans is for the discharge of their own personal obligations such as mortgages and school fees. There was here something more than a mere causal relationship between the employment and the payment..."

FCT v Slade Bloodstock Pty Ltd [2007] FCA 188 (Federal Court, Heerey J, 23 February 2007).

For a copy of the decision, go here

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