The Australian Government has announced significant changes to the Fringe Benefits Tax (FBT) treatment of certain salary sacrificed work-related benefits, with the new rules applying from 1 April 2027. These changes may affect many employers who currently offer salary packaging arrangements as part of their employee remuneration strategies.

With the changes less than six months away, businesses should begin reviewing their existing salary sacrifice arrangements to understand how the new rules may impact their future FBT obligations.

What Is Changing?

Currently, employers can often reduce or eliminate their FBT liability on certain work-related expense reimbursements by applying the “otherwise deductible rule”. This rule generally applies where the employee would have been entitled to claim an income tax deduction had they incurred the expense themselves.

From 1 April 2027, employers will no longer be able to apply this rule to certain expense payment fringe benefits where:

• the expense is work-related
• the expense falls within the new standard deduction framework, and
• the benefit is provided under a salary sacrifice arrangement.

This means some arrangements that have historically attracted little or no FBT may become taxable from the 2027-28 FBT year onwards.

Work-Related Expenses Potentially Affected

Several commonly salary-sacrificed expenses may be impacted by these changes, including:

• home office expenses
• home internet and phone costs
• self-education expenses.

Employers offering salary packaging arrangements covering these types of expenses should assess whether their current policies and employee agreements may require updating before the changes commence.

Changes to FBT-Exempt Work-Related Items

The reforms also affect certain work-related items that are currently exempt from FBT.

From 1 April 2027, the exemption will generally no longer be available where these items are provided through a salary sacrifice arrangement. Affected items include:

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

Many employers currently rely on these exemptions when offering salary packaged technology and equipment benefits. The upcoming changes may increase the after-tax cost of providing such benefits through salary sacrifice arrangements.

A Positive Change for Employers

Not all of the reforms result in a less favourable outcome. To compensate the setbacks mentioned above, from 1 April 2027 the Government will permit employers to provide multiple work-related items of similar / same functionality to an employee (not arranged via salary sacrifice) without attracting FBT.

This reform targets employers who provide work-related items to employees as part of their business outgoings.

Prior to the reform, if an employer provides multiple work-related items deemed to have the same or similar functionality / characteristics to a single employee, only one of these items will be exempt from FBT.

From 1 April 2027, employers will be able to provide multiple eligible work-related items with the same or similar function and continue to access the exemption, provided:

• the items are primarily used for work purposes, and
• they are not provided through a salary sacrifice arrangement.

For example, this change will benefit employers who may wish to:

• Provide both an iPhone and an Android phone to one employee for work purposes as certain apps will run more efficiently on different operating systems.
• Provide two work laptops to a single employee, one being for the business premise and one for the employee’s home office. This can mitigate sensitive data from being stolen / lost on portable devices whilst employees are commuting between home and work.

Importantly, this concession will be available to all employers rather than being limited to small businesses.

What Should Employers Do Now?

Although the changes do not take effect until 1 April 2027, employers should begin planning ahead to avoid incurring unexpected or unnecessary FBT liabilities. We recommend employers review the following.

Existing Salary Sacrifice Arrangements

Identify any current arrangements involving reimbursed work-related expenses or exempt

work-related items that may be affected by the new rules.

Future Remuneration Strategies

Consider whether alternative remuneration or benefit structures may better achieve the intended employee outcomes once the new rules commence.

FBT Compliance Processes

Ensure systems and processes are capable of identifying benefits that may become taxable under the updated rules and that appropriate records are maintained.

Employee Communications

Employees participating in salary packaging arrangements may need to understand how the changes could affect the value of their benefits and their overall remuneration package.

Key Takeaway

From 1 April 2027, employers will face a different FBT landscape for salary sacrificed work-related benefits. Businesses that proactively review their arrangements now will be better placed to manage compliance obligations, avoid unexpected FBT liabilities and continue providing attractive employee benefits in a tax-effective manner.

Contact Pilot

The interaction between salary sacrifice arrangements, FBT exemptions and rules can be complex.

With the commencement date of the changes fast approaching, now is an ideal time to review your current arrangements and prepare for the 2027-28 FBT year which commences 1 April 2027.

If you would like any assistance in reviewing current arrangements, assessing potential FBT exposures and impacts, contact Kristy Baxter, Angela Stavropoulos or your Pilot advisor on 07 3023 1300 or taxmed@pilotpartners.com.au.