FBT changes to salary sacrificed work-related benefits: What employers need to know

The Government’s draft legislation from the 2026 Federal Budget on the treatment of Fringe Benefits Tax (FBT) for work-related expenses has now been confirmed. The Australian Taxation Office (ATO) has announced significant changes to the FBT treatment of certain salary sacrificed work-related benefits, effective from 1 April 2027. These changes are expected to affect employers who currently provide work-related benefits through salary sacrifice arrangements and rely on existing FBT exemptions or concessions.

The changes form part of the Government's broader tax reform package, including the introduction of the $1,000 standard work-related deduction from 1 July 2026. Importantly, where the new FBT rules apply, FBT may be payable on the full value of the salary sacrificed benefit. For many employers, these reforms may increase FBT exposure and require a review of existing salary packaging arrangements before the commencement of the 2028 FBT year.

Key change 1: The ‘Otherwise Deductible Rule’ will be restricted

Under the current rules, employers may be able to reduce their FBT liability on certain expense payment fringe benefits by applying the Otherwise Deductible Rule (ODR). Broadly, the ODR reduces the taxable value of a benefit 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 the ODR to reduce FBT on expense payment fringe benefits where the benefit:

• iIs work-related and
• Is covered by the proposed standard deduction framework, such as home office expenses, home phone and internet costs, and certain self-education expenses; and
• Is provided under a salary sacrifice arrangement.

This change may affect certain work-related expenses, including professional memberships and self-education expenses, where employers currently rely on the ODR to reduce the taxable value of a benefit provided under a salary sacrifice arrangement. However, the changes are specifically targeted at salary sacrificed benefits. Employers may still be able to apply the ODR to reduce their FBT liability where an employee incurs the expense and is subsequently reimbursed under a traditional reimbursement arrangement that is not provided through a salary sacrifice arrangement.

Key change 2: Removal of FBT exemptions for certain salary sacrificed work-related items

A further change will affect a range of work-related items that are currently exempt from FBT.

From 1 April 2027, the following work-related items that are currently exempt from FBT will no longer be exempt where the items are provided under a salary sacrifice arrangement:

• Portable electronic devices
• Computer software
• Protective clothing
• Briefcases
• Tools of trade.

This represents a significant shift for employers that currently allow employees to salary package laptops, tablets, mobile phones and similar equipment without triggering an FBT liability. Employers may need to reconsider whether these benefits should continue to be offered via salary sacrifice or whether alternative remuneration arrangements would be more effective.

Key change 3: Expansion of the work-related item exemption

While some concessions are being removed, the ATO has confirmed a welcome simplification in relation to work-related items. From 1 April 2027, employers will be able to provide employees with more than one eligible work-related item in an FBT year, even where the items have the same or substantially identical function, provided the items are principally used for work purposes and are not provided through a salary sacrifice arrangement.

This change removes the current restriction that limits employers to providing one exempt item per employee per FBT year where the items have the same or substantially identical function. The reform also broadens access to the exemption by extending it to all employers, rather than limiting the concession to small businesses.

BDO insight

The ATO's reforms are intended to align the FBT treatment of salary sacrificed work-related benefits with broader changes to work-related deductions and the proposed standard deduction regime. Importantly, employers should note that eligible work-related items may continue to qualify for existing FBT exemptions or the ODR where they are not provided under a salary sacrifice arrangement. While the changes do not commence until 1 April 2027, employers should begin reviewing their arrangements well in advance to understand the financial and administrative impact. These changes highlight the need for employers to reassess their salary packaging programs before the new rules take effect.

Areas that may warrant review include:

• Existing salary sacrifice policies and employment agreements
• Salary packaged technology and work-related equipment arrangements
• Reimbursement arrangements for home office, professional membership and self-education expenses
• FBT cost modelling for the 2028 FBT year and beyond
• Payroll and record-keeping processes to ensure ongoing compliance.

Employers should also consider communicating the upcoming changes to affected employees, particularly where salary packaging arrangements have historically delivered tax efficiencies that may no longer be available.

How BDO can help

For organisations that provide a broad range of salary packaged benefits, early planning will be critical to managing FBT exposure and ensuring employees understand how the changes may affect their remuneration arrangements. BDO’s employment tax specialists can help employers assess how the upcoming FBT changes may impact their salary sacrifice arrangements, review existing policies and benefits programs, and identify potential FBT exposures ahead of the 1 April 2027 commencement date.

We can also assist with modelling the financial impact of the reforms, reviewing remuneration packaging strategies, and ensuring appropriate record-keeping and compliance processes are in place. To discuss how these changes may affect your organisation, contact your local adviser.