From 1 April 2027, salary sacrificed tools, devices and work-related expenses lose their FBT concessions. We explain what construction employers should review.
From 1 April 2027, fringe benefits tax (FBT) will apply to several work-related benefits that employers can currently salary package with little or no FBT. The changes sit alongside the new standard deduction for work-related expenses, which the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 introduced from the 2026–27 income year. The first year affected is the 2027–28 FBT year, which runs from 1 April 2027 to 31 March 2028.
Three terms come up throughout this article, so it helps to explain them up front:
Construction businesses are most likely to be affected where employees salary package tools of trade, mobile phones, laptops and tablets, protective clothing, course fees, or home phone and internet costs. The FBT treatment of these items stays the same when the business provides them outside salary sacrifice.
When an employer pays or reimburses an expense that an employee has incurred, the payment is called an expense payment fringe benefit. The otherwise deductible rule reduces the taxable value of that benefit by the amount the employee could have claimed as an income tax deduction if they had paid the expense themselves. Under the current rules, a salary packaged reimbursement of a fully work-related expense can therefore attract little or no FBT.
From 1 April 2027, employers will no longer be able to use the otherwise deductible rule for an expense payment fringe benefit that meets all three of these conditions:
The ATO lists home office expenses, home phone and internet expenses, and self-education expenses as examples of affected payments and reimbursements. The change applies regardless of the value of the expense, so a salary packaged expense costing more than $1,000 is still affected.
Employers can still use the otherwise deductible rule for expenses the standard deduction does not cover, and for expenses it does cover that are paid or reimbursed outside salary sacrifice.
Certain work-related items are currently exempt from FBT when they are provided mainly for work use. In construction, the exemption commonly covers the tools, phones and protective clothing that site staff use.
From 1 April 2027, the following items will no longer be exempt from FBT when they are provided through a salary sacrifice arrangement:
Unless another exemption applies, the employer will pay FBT on these items when an employee salary packages them. The items stay exempt when the business provides them outside salary sacrifice and they are used mainly for work.
Under the current rules, the work-related item exemption is limited to one item per employee per FBT year where the items have the same or a substantially identical function, unless the second item is a replacement. Businesses with aggregated turnover under $50 million are already exempt from that limit for portable electronic devices.
From 1 April 2027, all employers will be able to provide an employee with more than one exempt work-related item in the same FBT year, including items with the same or a substantially identical function, provided both of these conditions are met:
From 1 April 2027, businesses with turnover under $50 million will also be able to provide more than one exempt item in the other categories, including tools of trade and protective clothing, provided the items are not salary sacrificed. Businesses with turnover of $50 million or more will be able to provide more than one exempt item of the same type in a year for the first time.
The table compares the FBT position from 1 April 2027 for the same item provided in two ways: through salary sacrifice, or by the business outside salary sacrifice. Each example assumes the item is used mainly for work and no other exemption applies.
For each affected package, the business will need to choose whether to absorb the FBT, adjust the employee’s package, or provide the item outside salary sacrifice. Each option affects wages, superannuation and take-home pay differently, so the right choice depends on the business and the employee.
The current FBT year ends on 31 March 2027, which gives businesses time to review existing arrangements before the changes start. The ATO recommends that employers review their salary sacrificed work-related benefits and work out which expenses the standard deduction covers. In practice, that review has four steps:
Employees with existing packages will need to know the impact the changes will have. The review is also a good time to plan how you will explain that impact to them.
If your business salary packages tools, devices, protective clothing or work-related expenses, we can work through each arrangement with you and show you how it is treated from 1 April 2027. We can then help you compare your options and put the right records and processes in place before the new FBT year begins. To talk through your arrangements, please contact your Xact Client Director or get in touch with our team.
**This article contains general information only and does not take into account your business’s circumstances. Please seek advice specific to your situation before acting on it.
