The demise of salary packaging for work-related expenses

Article

Published: May 12, 2026

There is an unexpected Fringe Benefits Tax (FBT) sting in the draft legislation for the standard $1,000 work-related expenses deduction that was released on 20 April 2026. This may lead to the demise of salary packaging work-related expenses for individuals from the commencement of the new proposed provisions. Although the Federal Budget did not address the FBT issue, it is included in the draft legislation previously released and is therefore assumed to be proceeding.

The Government has proposed in its announcement to introduce a $1,000 standard tax deduction for all Australian tax resident individuals who derive assessable labour income, commencing in the 2026-27 financial year. Surprisingly, the proposed measure also includes changes to the FBT legislation, so that certain salary packaged benefits will become subject to FBT.

Where the salary sacrificed expense relates to expenses covered by the proposed standard deduction, the taxable value of the benefit will no longer be reduced, and an FBT liability will arise for the employer. Under the proposed changes to the FBT legislation, the ‘otherwise deductible rule’ will no longer apply to these benefits.

In addition, the Government is proposing to remove the FBT exemption for certain eligible work-related items, such as salary-sacrificed mobile phones and tablets, so that FBT will apply to these benefits (where no alternate FBT exemption or concession is available). In good news, the restriction on substantially identical items in the same FBT year will be removed for all employers.

The FBT amendments will apply to FBT years from 1 April 2027.

Which expenses are impacted under the proposed measures?

Employers will no longer be able to reduce the value for FBT purposes, and therefore will have an FBT liability, where the employee salary sacrifices the following expenses:

Claims under the general deduction provisions of the tax law
Car expenses
Travelling between workplaces
Depreciating assets such as repairs, depreciation, and balancing adjustments
Covid-19 tests.

In addition, the following salary‑sacrificed benefits will no longer qualify for an FBT exemption for employers:

Portable electronic devices (e.g. mobile phones, laptops, tablet devices, etc.)
Computer software
Protective clothing
Briefcases
Tools of trade.

Therefore, FBT will apply to employers in these situations where no alternative FBT exemption or concession is available under the FBT law.

BDO comment

Under the proposed changes to the FBT legislation relating to the $1,000 tax deduction, salary packaging of these benefits will no longer be attractive. Employees will likely need to cease such arrangements to ensure the employer does not incur FBT exposure on the salary-sacrificed benefits, which the employer would then seek to recover from the employee. Employees and employers should also be mindful of these proposed changes before entering into any new salary packaging arrangements once the provisions commence.

It should be further noted that these proposed amendments to the FBT legislation will apply irrespective of the amount of the expenses. That is, even though they are being introduced in conjunction with the standard $1,000 tax deduction, the proposed FBT amendments will apply to the benefits even where they exceed $1,000 in total for the FBT year. BDO’s view is that this is a design flaw in the proposal that should be addressed.

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