Key points
- The introduction of the new $1,000 standard deduction for work-related expenses from 1 July 2026 is accompanied by important changes to the FBT rules.
- While the standard deduction is primarily an individual income tax measure, employers may face additional FBT costs from 1 April 2027, particularly where work-related expenses and equipment are provided to employees through salary packaging arrangements.
- The ATO has released draft Law Companion Ruling LCR 2026/D5, which confirms that the changes are intended to prevent employees accessing both the standard deduction and concessional FBT treatment for certain salary-packaged benefits
What’s changing?
Salary packaged work expenses may attract FBT
Currently, employers can often rely on the otherwise deductible rule to reduce the taxable value of work-related expenses paid or reimbursed on behalf of employees.
From 1 April 2027, this concession will no longer be available where:
- the benefit is an expense payment fringe benefit
- the expense is a work-related expense covered by the standard deduction rules
- the benefit is provided under a salary packaging arrangement
This could affect salary packaging arrangements for expenses such as professional development and conference costs, work-related travel, self-education expenses and certain tools and equipment.
For example, where an employee salary packages flights, accommodation and registration costs to attend a work-related conference, the employer may be liable for FBT even though those costs would ordinarily have been deductible to the employee if personally incurred.
Ordinary employer reimbursements are largely unaffected
Importantly, the changes are targeted at salary packaging arrangements.
Where an employee incurs a deductible work-related expense and the employer reimburses that expense outside a salary packaging arrangement, the employer can continue to access the otherwise deductible rule, subject to the usual requirements.
There is also a favourable outcome for employees. Work-related expenses reimbursed by an employer do not reduce the employee’s standard deduction because the employee is not entitled to separately claim a deduction for the reimbursed expense.
Employers should consider whether traditional reimbursement arrangements may provide a more tax-effective alternative to salary packaging for certain work-related expenses.
Salary packaged work-related items also affected
Changes will also apply to the existing FBT exemption for certain work-related items.
From 1 April 2027, the exemption will no longer apply to the following items where they are provided under a salary packaging arrangement:
- portable electronic devices
- computer software
- protective clothing
- briefcases
- tools of trade.
These items can, however, continue to qualify for the exemption where they are provided primarily for use in the employee’s employment outside a salary packaging arrangement.
In a welcome change, the existing restriction on providing multiple items with substantially identical functions in the same FBT year will also be removed from 1 April 2027.
What does this mean for employers?
Employers should review existing salary packaging arrangements ahead of 1 April 2027, particularly those involving:
- conferences, training and professional development
- work-related travel
- technology and portable electronic devices
- tools and equipment
- other deductible work-related expenses.
Where affected benefits are currently salary packaged, employers should quantify the potential additional FBT cost and consider whether the existing arrangements remain appropriate.
Employers may also wish to revisit benefit policies and consider whether certain work-related costs are more appropriately paid or reimbursed by the employer outside salary packaging arrangements.
What employers need to do now
Employers with affected salary packaging programs should review their arrangements now to understand the potential cost and determine whether changes are required before the new FBT rules commence.
