FBT Changes for Salary Sacrificed Work-Related Benefits

Julie Tse

Associate Director

Key Insights:

FBT Changes for Salary-Sacrificed Work-Related Benefits:What Employers Need to Know

The Australian Taxation Office (ATO) has released guidance on upcoming changes to the Fringe Benefits Tax (FBT) treatment of certain salary-sacrificed work-related benefits. The changes will apply from the FBT year commencing 1 April 2027 and may impact the cost and effectiveness of some salary packaging arrangements. Note that current arrangements remain subject to the existing rules until 31 March 2027.

Why are these changes being introduced?

The changes are intended to prevent employees obtaining a potential double tax benefit through both the new standard work-related deduction and concessional FBT treatment under salary packaging arrangements.

From the 2026-27 income year, eligible taxpayers will be able to claim a standard deduction of up to $1,000 for work-related expenses without needing to substantiate individual expenses or maintain supporting records. To prevent employees from receiving both the benefit of the standard deduction and a concessional FBT outcome through salary packaging, the Government has introduced corresponding changes to the FBT rules.

What is changing?

From 1 April 2027:

the otherwise deductible rule will no longer apply to certain salary-sacrificed work-related expenses that fall within the standard deduction categories; and
certain work-related items currently exempt from FBT will lose that exemption when provided under a salary sacrifice arrangement.

Importantly, the changes are targeted at work-related expenses covered by the new standard deduction framework. Salary-packaged expenses outside those categories may continue to qualify for the otherwise deductible rule, subject to the ordinary FBT requirements.

Benefit or arrangement

Before 1 April 2027

From 1 April 2027

Salary-sacrificed reimbursement or payment of work-related expenses (for example, home office expenses, home phone and internet costs, and self-education expenses)

Employers can generally reduce the taxable value of the benefit under the otherwise deductible rule where the employee would have been entitled to claim a tax deduction had they incurred the expense personally, subject to substantiation requirements.

The otherwise deductible rule will no longer apply where the expense is covered by the standard deduction categories and is provided through a salary sacrifice arrangement. The benefit may therefore be subject to FBT unless another exemption or concession applies.

Work-related expenses provided outside a salary sacrifice arrangement

The otherwise deductible rule may apply where the relevant conditions are met.

No change. The otherwise deductible rule remains available where the expense is not provided under a salary sacrifice arrangement, and the relevant requirements continue to be satisfied.

Salary-packaged expenses that are not covered by the standard deduction categories

The otherwise deductible rule may apply where the relevant conditions are met.

No change. The otherwise deductible rule remains available where the expense falls outside the standard deduction categories.

Work-related items such as portable electronic devices, computer software, protective clothing, briefcases and tools of trade

These items may qualify for an FBT exemption where they are primarily provided for work-related use. In some cases, current rules restrict exemption for multiple items with the same or substantially identical function.

Where these items are provided under a salary sacrifice arrangement, the exemption will generally no longer be available. However, qualifying items provided outside salary sacrifice arrangements can continue to be exempt, and the restriction on multiple items with the same or substantially identical function will be removed.

‍Example

An employee salary sacrifices a $2,000 self-education course. Prior to 1 April 2027, the employer may be able to reduce the taxable value of the benefit to nil under the otherwise deductible rule. From 1 April 2027, where the expense falls within the relevant standard deduction categories and is provided under a salary sacrifice arrangement, that reduction could no longer be available.

Preparing for the changes

Employers that currently offer salary-packaged work-related expenses or salary-sacrificed work-related items should review those arrangements before 1 April 2027, as benefits that currently attract little or no FBT may become taxable.

We recommend that affected employers:

Identify existing salary-sacrificed work-related benefits that may be affected.
For impacted arrangements, undertake FBT cost modelling to evaluate potential FBT implications.
Review payroll and record-keeping processes to ensure implementation of key changes.
Consider early communication to affected employees of any upcoming changes to the overall value of their salary packaging arrangements.

Need assistance?

If you would like to understand how these changes may affect your business or your existing salary packaging arrangements, please contact our office. We can help review your current arrangements, assess potential FBT implications, and ensure you are prepared well before the new rules take effect.

‍

Contributions from