Highlights

  • From 1 April 2027, the otherwise deductible rule will no longer reduce FBT for certain salary-sacrificed work-related expense payment benefits covered by the standard deduction.
  • Some work-related items will lose their FBT exemption when provided through salary sacrifice.
  • The exemption for multiple items with the same function will become more flexible where the items are not salary sacrificed and are used primarily for work.
  • Employers and salary-packaging providers should review existing arrangements before the 2027–28 FBT year begins.

Employers who allow staff to salary sacrifice work-related items and expenses should prepare for changes to the Fringe Benefits tax (FBT) rules.

The Australian Taxation Office has flagged changes that will take effect from 1 April 2027, the start of the 2027–28 FBT year.

The reforms tighten the treatment of some salary-packaged work-related benefits while also broadening the exemption available for multiple work-related items in certain circumstances.

The otherwise deductible rule is narrowing

From 1 April 2027, employers will no longer be able to rely on the otherwise deductible rule to reduce their FBT Liability for certain salary-sacrificed work-related expense payment fringe benefits that are covered by the standard deduction.

This affects categories such as home office running costs, home phone and internet expenses, and self-education costs where they fall within the standard deduction framework.

The practical effect is that an employer may no longer be able to reduce the taxable value of these salary-sacrificed benefits on the basis that the employee would otherwise have been entitled to claim the expense personally.

Some work-related item exemptions are being removed

Certain work-related items will also lose their FBT exemption where they are provided under a salary-sacrifice arrangement.

The affected categories include:

  • portable electronic devices;
  • computer software;
  • protective clothing;
  • briefcases; and
  • tools of trade.

Importantly, the change does not mean these items automatically become taxable fringe benefits in every circumstance.

They can remain exempt where they are provided outside a salary-sacrifice arrangement and are used primarily for work.

That distinction makes the way the benefit is provided increasingly important.

A relaxation for multiple identical items

Not every aspect of the reform represents a tightening.

Employers will be able to provide multiple work-related items with the same function and still access the exemption, provided the items are not salary sacrificed and are used primarily for work.

This relaxes the previous restriction that generally limited the exemption to one item of a particular type per employee during an FBT year, subject to existing exceptions.

The change also broadens access beyond small-business employers.

For organisations that legitimately need to provide employees with more than one device or work item, this could offer additional flexibility.

Who may be affected

Employers offering salary packaging for work-related expenses and equipment are the main group affected.

Employees using those arrangements may also see changes to the after-tax value of some benefits once the new rules commence.

Salary-packaging providers will need to review their products and administrative processes ahead of the 2027–28 FBT year.

Employers that currently offer packaged laptops, software, protective clothing, tools or work-related expense reimbursements should pay particular attention.

What to consider next

Employers should review existing salary-sacrifice arrangements against the rules that will apply from 1 April 2027.

The key questions are:

  • whether the benefit falls within a category covered by the standard deduction;
  • whether it is being provided through salary sacrifice;
  • whether an existing FBT exemption will continue to apply; and
  • whether the item could instead be provided directly by the employer for work use.

There is still time to prepare, but arrangements established now may run into the next FBT year, so their future tax treatment should be considered before they are renewed.

How the standard deduction fits in

The FBT changes are closely connected with the standard deduction for work-related expenses.

Where certain work-related costs are covered by a standard deduction at the employee level, the government is removing the ability to obtain an overlapping FBT concession through salary-sacrificed expense payment benefits in those same categories.

That is why the otherwise deductible rule will no longer reduce FBT for salary-sacrificed expenses such as eligible home office running costs, home phone and internet expenses, and self-education costs covered by the standard deduction.

The policy direction is therefore to prevent the same broad class of work-related expense from receiving overlapping concessions through both the employee tax system and employer salary packaging.

Salary-sacrificed work items also change

The treatment of work-related items moves in the same direction.

Portable electronic devices, computer software, protective clothing, briefcases and tools of trade can continue to qualify for exemption where the statutory conditions are met and they are provided primarily for work.

However, the exemption will no longer apply where those items are provided under a salary-sacrifice arrangement.

That makes the distinction between employer-provided equipment and employee-funded salary packaging much more significant from 1 April 2027.

Preparing for 1 April 2027

Employers should audit their current arrangements well before the start of the 2027–28 FBT year.

That review should identify benefits that will lose concessional treatment and determine whether the organisation needs to change how those benefits are provided.

In some cases, supplying an item directly to an employee for work purposes may remain more tax-effective than offering it through salary sacrifice, provided the relevant exemption conditions are satisfied.

The relaxation for multiple items with the same function also gives employers greater flexibility where employees genuinely need more than one work-related device or item.

Communicating changes ahead of time will be important so employees understand why some salary-packaged benefits may be restructured or discontinued.