Australian employers need to adjust their fringe benefits tax (FBT) arrangements ahead of significant regulatory changes taking effect on 1 April 2027.
The Australian Taxation Office (ATO) has announced reforms on 7 September 2026 that restrict how employers can reduce fringe benefits tax (FBT) liability when offering salary sacrificed work-related benefits, particularly for expenses covered by the standard deduction.
Salary sacrifice exemption narrowing
From 1 April 2027, the “otherwise deductible” rule will no longer apply to salary sacrificed work-related expense payments covered by the standard deduction. This affects benefits including home office expenses, home phone or internet costs, and self-education expenses.
The otherwise deductible rule remains available only when employees receive expense payments that fall outside the standard deduction or when such benefits aren’t delivered via salary sacrifice arrangements.
Items losing exemption status under salary sacrifice
Certain work-related items will become subject to FBT when provided through salary sacrifice. These include portable electronic devices, computer software, protective clothing, briefcases, and tools of trade. Items in this category retain their FBT exemption if employers provide them outside a salary sacrifice structure.
Expansion of multiple-item exemption
A new provision allows employers to provide multiple work-related items in a single FBT year while maintaining exemption status. Previously, the limit stood at one exempt item per employee per year. The reformed rule applies to all employers (not just small businesses) and covers items with the same or substantially identical functions, provided they are used primarily for work and aren’t part of a salary sacrifice arrangement.
Recommended actions for employers
Employers should conduct a review of existing salary sacrificed arrangements to identify which expenses fall under the standard deduction. This assessment will determine the FBT implications from April 2027 onwards.
The ATO recommends reviewing FBT calculation methods, maintaining appropriate records, and ensuring compliance with 2027–28 FBT year reporting and lodgment obligations.
