Key Highlights

  • The Federal Court considered Carbery v Fire Rescue Victoria [2026] FCA 1488.
  • The court found a taxable value of 28.4% for the reimbursed contributions.
  • Reportable Fringe Benefits generally arise when relevant taxable values exceed $2,000.
  • It can affect income-tested payments and child support without being added directly to taxable income.

Salary packaging union income protection may seem like a tidy way to cover a work-related cost. A Federal Court decision suggests it can also leave a mark on an employee's income statement. In Carbery v Fire Rescue Victoria, reimbursed union income protection contributions were treated as a reportable fringe benefit. That matters because reportable fringe benefits can flow into income tests for government payments and child support, well beyond the tax return itself.

What the Federal Court found

The case is Carbery v Fire Rescue Victoria [2026] FCA 1488.

The court dealt with union income protection contributions that the employer reimbursed through a salary packaging arrangement.

The court found that those reimbursed contributions had a taxable value of 28.4% after apportionment.

The employee's reportable fringe benefits amount can affect income-tested payments and child support.

How a benefit becomes reportable, and why 28.4% matters

Salary packaging generally involves an employee agreeing to give up part of their pre-tax salary in exchange for benefits paid or reimbursed by the employer. Whether that delivers a net advantage depends heavily on how each benefit is treated for FBT.

Under long-standing Australian law, fringe benefits tax is paid by the employer, not the employee. The FBT year runs from 1 April to 31 March, and the FBT rate is 47%, according to the ATO's FBT rates page.

Some fringe benefits must also be reported on the employee's income statement. In general, this applies where the total taxable value of certain benefits an employee receives in an FBT year is more than $2,000.

The amount reported is not the raw taxable value. It is a "grossed-up" figure, worked out using the lower gross-up rate, which the ATO lists as 1.8868.

The reportable fringe benefits amount is not added to taxable income, and no income tax is paid on it directly. But it is counted in a range of income tests.

The taxable value of a benefit is the starting point for both the employer's FBT and the employee's reportable amount. A higher taxable value generally means more FBT for the employer, which may be passed back to the employee under the packaging agreement.

Under the "otherwise deductible" rule, the taxable value of some benefits can generally be reduced to the extent the employee could have claimed a deduction had they paid the cost themselves.

After apportionment, a taxable value of 28.4% remained. A non-zero taxable value is what can push an employee's total benefits over the $2,000 reporting threshold.

For employees with other packaged benefits, even a modest additional taxable value can be enough to tip the total into reportable territory.

Hypothetical example: crossing the $2,000 threshold

Hypothetical example: Alex has $2,000 of union income protection contributions reimbursed through salary packaging during an FBT year. Assume, for illustration, that 28.4% of that amount is treated as taxable value, as in the outcome reported in Carbery.

The taxable value is $2,000 × 28.4% = $568.

Alex also receives other reportable benefits with a combined taxable value of $1,800.

Without the income protection item, Alex's total is $1,800. That does not exceed $2,000, so no reportable fringe benefits amount would appear on the income statement.

With it, the total is $1,800 + $568 = $2,368, which is more than $2,000.

The reportable amount is then grossed up: $2,368 × 1.8868 = $4,467.94.

That figure would appear on Alex's income statement. It would not be taxed as income, but it could be counted in income tests.

The 28.4% is the reported outcome of one case on its own facts. It should not be assumed to apply to any other arrangement.

The knock-on effects: payments, child support and more

Income-tested payments and child support are among the areas where a reportable fringe benefits amount can have an effect.

Under long-standing rules, reportable fringe benefits are generally included in "adjusted taxable income", a measure used by Services Australia for payments such as Family Tax Benefit, and in the income used for child support assessments.

Reportable fringe benefits are also generally counted in other tax-related income tests. These include the Medicare levy surcharge, the private Health Insurance rebate tiers and the income used to calculate compulsory HELP repayments.

They are also generally counted in the income tests for the super co-contribution and the spouse contribution tax offset.

That means two employees with the same salary can face different outcomes on those tests if one has a reportable fringe benefits amount and the other does not.

For separated parents, any change in the income used for child support can affect payments in either direction. Each family's position depends on both parents' circumstances.

FBT changes on the horizon for salary packaging

The decision arrives as other changes to salary packaging are in the pipeline.

The ATO's draft ruling LCR 2026/D5, on the new $1,000 standard deduction, says that from FBT years starting on or after 1 April 2027, the "otherwise deductible" rule will be unavailable for salary-packaged "covered expenses". The ATO's example is that salary-packaged laptops and phones lose the work-related items exemption.

The same draft lists union and professional association fees and income protection insurance premiums among the items that do not reduce the $1,000 standard deduction.

How those draft positions interact with arrangements like the one in Carbery is not settled. LCR 2026/D5 is draft ATO guidance, and its comment period closed on 9 October 2026. The final ruling may differ.

What to watch

Employers that package union fees or income protection contributions may wish to review how those benefits are valued and reported, with professional advice. Employees can check their income statement in myGov for any reportable fringe benefits amount.

The current FBT year ends on 31 March 2027. The draft standard deduction changes to the otherwise deductible rule are proposed to apply from FBT years starting on or after 1 April 2027.

Watch for the final version of LCR 2026/D5, any appeal in Carbery, and MYEFO in December, which will update the government's budget outlook.