Background
Fire Rescue Victoria (FRV) reimbursed eligible firefighters for weekly contributions to the United Firefighters’ Union of Australia – Victorian Branch Discretionary Trust. The arrangement was introduced to meet enterprise agreement and Fair Work Commission requirements concerning income protection. Contributions supported loss-of-income benefits, but also a range of other benefits, including death, disability, ambulance, dental, private-health and legal-expense cover.
FRV treated the reimbursements as expense payment fringe benefits and reported taxable values that affected firefighter Robin Carbery’s family-tax-benefit entitlement and child-support obligations. Three related proceedings followed: Carbery’s claim against FRV, FRV’s claim against the union and the trust’s trustee, and FRV’s tax appeal against the Commissioner. The common issue was the taxable value of contributions made from 1 January 2023 to 1 October 2025.
The Court’s Holding
McElwaine J answered the separate question by holding that the taxable value of the contributions under ss 23 and 24 of the Fringe Benefits Tax Assessment Act 1986 (Cth) was 28.4% of the contributions, inclusive of GST. This reflected an otherwise deductible percentage of 71.6%.
The Court held that the contributions were not solely for deductible income-protection cover. They also gave members access to non-deductible trust and insurance benefits. Applying the fair-and-reasonable apportionment approach in Ronpibon Tin NL v Commissioner of Taxation, the Court accepted FRV’s methodology, which identified expenditure on loss-of-income claims and the income-protection component of insurance premiums, while treating other member benefits as non-deductible. It rejected Carbery’s argument that the scheme’s essential character was wholly income protection or that the calculation methodology was unsound.
Key Takeaways
- The otherwise deductible rule can reduce the taxable value of an employee expense-payment fringe benefit where the employee would hypothetically have been entitled to an income-tax deduction.
- A single contribution that funds both deductible income-protection benefits and non-deductible benefits must be apportioned on a fair and reasonable basis.
- For these firefighter contributions, 71.6% was otherwise deductible, leaving 28.4% taxable for FBT purposes.
Why It Matters
The decision confirms that employee benefit schemes cannot be treated as wholly deductible merely because income protection is their principal purpose. Where a contribution funds a mixed package of benefits, the FBT outcome turns on the objective character of what the contribution purchases and on a supportable apportionment methodology.
It also illustrates the potential personal consequences of an employer’s FBT reporting for employees whose reportable fringe benefits affect income-tested entitlements or child-support liabilities.