Key Highlights

  • Salary-packaged laptops and phones would lose the work-related items exemption from 1 April 2027.
  • The $1,000 standard deduction applies from the 2026–27 income year.
  • The draft describes a dollar-for-dollar reduction for covered actual expense claims.
  • Losing an exemption changes the employer's FBT calculation and the cost of the package.

For years, packaging a new laptop or phone through an employer has been one of the simplest tax perks available to Australian workers. Draft ATO guidance released alongside the new $1,000 standard deduction says that arrangement is set to change. From FBT years starting on or after 1 April 2027, the draft says salary-packaged laptops and phones lose the exemption that made them so attractive. With employers already planning next year's packaging options, the timing matters now.

What the draft ruling actually says

The ATO issued draft Law Companion Ruling LCR 2026/D5 on 26 August 2026. Its main purpose is to explain the new standard deduction for work-related expenses, which is law and applies from the 2026–27 income year.

Comments on the draft closed on 9 October. The final ruling has not yet been issued, and the ATO has not announced a release date.

On the FBT side, the draft says that from FBT years starting on or after 1 April 2027, the "otherwise deductible" rule is unavailable for salary-packaged covered expenses. As a consequence, it says, salary-packaged laptops and phones lose the work-related items exemption.

A Law Companion Ruling sets out how the ATO considers new legislation applies. The ATO's position rests on the law that introduced the standard deduction, and the draft is its explanation of how that law works. The final ruling could refine the detail.

How the exemption has worked until now

Under long-standing FBT rules, certain work-related items, including portable electronic devices used primarily for work, can be exempt from FBT. That exemption is what made packaging a laptop or phone appealing.

The item is paid for out of pre-tax salary, and the employer pays no FBT on it. The employee effectively buys the device with dollars that have not been taxed.

The "otherwise deductible" rule is a related concept. Broadly, it reduces the taxable value of some benefits to the extent the employee could have claimed an income Tax deduction had they paid for the item themselves.

The draft links the FBT change to the new treatment of "covered expenses" under the standard deduction regime. In short, the ATO's view is that packaged versions of those expenses no longer get the same FBT relief.

How the standard deduction fits in

According to the draft, the standard deduction is the lesser of $1,000 and a person's assessable labour income. It is reduced dollar-for-dollar by claims for expenses such as working from home, car, self-education, uniforms and work travel.

Some items do not eat into it. The draft lists income protection insurance premiums, union and professional association fees, which still need to be substantiated, and deductions for investment, rental, tax affairs and donations.

The draft includes a worked example: a person with $650 of labour income and $400 of claimed expenses receives a standard deduction of $250.

The draft also says that if claimed expenses are later disallowed, the standard deduction "may be increased" on assessment or amendment.

Hypothetical example: packaging a $2,000 laptop before and after

Hypothetical example: Sam earns $100,000 in 2026–27. At that income, the marginal tax rate is 30%, plus the 2% Medicare levy, so 32 cents of each extra dollar goes in tax.

Under an exempt arrangement, Sam packages a $2,000 laptop. Giving up $2,000 of pre-tax salary reduces Sam's Take-home pay by $1,360, a saving of $640 compared with buying the laptop from after-tax income.

Now suppose the exemption no longer applies and the employer passes the full FBT cost back through the package, as many packaging arrangements do.

Using this year's figures for illustration, a $2,000 laptop on which the employer claims a GST Credit is grossed up at the Type 1 rate of 2.0802, to $4,160.40. FBT at 47% on that amount is $1,955.39.

If Sam's package bears that cost, the total pre-tax deduction from salary is $3,955.39. In take-home terms that is about $2,689.66, or $689.66 more than simply buying the laptop with after-tax money.

The example ignores any income tax deduction Sam might claim on a self-purchased laptop, employee contributions that could reduce the taxable value, and any change in FBT rates for later years. FBT rates and gross-up factors for the year starting 1 April 2027 have not yet been published.

What it means for employers and packaging providers

For employers, the practical question is whether to keep offering devices through salary packaging from 1 April 2027. Once FBT applies, the arithmetic may no longer favour most staff.

Packaging providers and Payroll teams are likely to review policies, contracts and employee communications. The draft frames the change by reference to FBT years starting on or after 1 April 2027, and how that applies to devices packaged before then is a question employers will want settled in the final ruling.

Smaller employers that use external packaging providers may find those providers set the pace, since product menus are usually standardised across many clients.

Phones raise similar issues. Many employers provide a work phone directly rather than through a salary sacrifice, and those arrangements may be analysed differently, depending on who owns the device and how it is used.

CPA Australia's submission on the draft asked for a "non-exhaustive schedule of common expenses" in the final ruling, and for the ATO to stop describing the mechanism as an "election".

Those requests concern the income tax side, but they signal that the profession expects more detail before the new rules bed down.

Dates to watch

The final version of LCR 2026/D5 is the key document for employers and workers alike. No release date has been announced.

The current FBT year ends on 31 March 2027, and the change described in the draft would apply from the FBT year that starts on 1 April 2027. The ATO typically publishes rates and thresholds for each new FBT year before it begins.

The 2026–27 income year is the first in which the $1,000 standard deduction applies, so the first returns using it will be lodged from July 2027.

In the broader tax calendar, the Senate Economics Legislation Committee is due to report on 13 November on the government's trust and housing tax bills, and MYEFO is expected in December.