The Government’s new $1,000 standard deduction for work-related expenses has been widely promoted as a way to simplify tax returns and reduce record-keeping for employees. From 1 July 2027, eligible taxpayers will generally be entitled to a deduction of up to $1,000 without needing to incur expenses or keep receipts. Draft Law Companion Ruling LCR 2026/D5 provides guidance on how the new deduction will operate in practice.
What has received far less attention is the impact on employers. Accompanying changes to the Fringe Benefits Tax (FBT) rules mean certain work-related benefits provided under salary packaging arrangements may attract FBT where they have historically been provided free of FBT.
For example, an employer that currently salary packages work-related training costs or home office expenses may find that those arrangements no longer receive the same FBT treatment under the new rules. Conversely, some expenses, such as qualifying professional association membership fees, continue to receive different treatment and therefore require separate consideration.
Why employers need to pay attention
Many employers provide or reimburse work-related expenses without incurring FBT. This may be achieved through the “otherwise deductible” rule, which can reduce the taxable value of an expense payment fringe benefit, or through specific exemptions for eligible work-related items.
The new rules do not remove these concessions across the board. Instead, they restrict their application to certain benefits provided under salary packaging arrangements. The impact will therefore depend both on whether the expense is covered by the standard deduction and how the employer provides the benefit.
For example, salary-packaged home office costs, work-related travel and professional development expenses may be affected, whereas qualifying professional association membership fees can generally be claimed separately without reducing the employee’s standard deduction. Employers should therefore review affected arrangements individually rather than assume all work-related benefits will attract FBT.
Restricted application of the otherwise deductible rule
Currently, where an employer reimburses an employee for an expense that would have been personally deductible, the otherwise deductible rule can often reduce the taxable value of the resulting expense payment fringe benefit to nil.
Under the new rules, this reduction will generally no longer be available where an expense covered by the standard deduction is provided under a salary packaging arrangement. Affected expenses may include:
- Work-related travel between workplaces;
- Home office expenses;
- Work-related consumables;
- Professional development expenses; and
- Other employment-related expenses that would ordinarily form part of an employee’s work-related deduction claim.
For example, where an employee salary sacrifices the cost of work-related training or travel and the employer pays or reimburses that expense, an FBT liability may arise unless another exemption or concession applies.
Importantly, LCR 2026/D5 states that where an expense payment benefit is not provided under a salary packaging arrangement, the employer may continue to apply the otherwise deductible rule, provided the usual requirements are met and appropriate records are kept.
Removal of work-related items exemption for salary-packaged benefits
Perhaps the more surprising aspect of the reforms is the removal of the FBT exemption for certain eligible work-related items provided under salary packaging arrangements. Affected items include portable electronic devices, computer software, protective clothing, briefcases and tools of trade.
The exemption is not being removed for every employer-provided work-related item. Items provided primarily for use in employment, but outside a salary packaging arrangement, can continue to qualify for the exemption. Employers should therefore focus their review on how affected benefits are structured, rather than assuming all employer-provided technology and equipment will attract FBT.
Existing employment contracts could be a problem
Many employers may discover these changes affect arrangements they are already contractually committed to providing. Employment contracts, remuneration policies and enterprise agreements often include commitments to provide work-related equipment, reimbursements or salary-packaged benefits that were originally designed to be delivered without an FBT cost.
Examples include:
- Salary-packaged technology allowances;
- Salary-packaged mobile phones, laptops and other portable electronic devices;
- Salary-packaged professional development and training expenses; and
- Salary-packaged home office reimbursement arrangements.
Importantly, these arrangements can create legally enforceable obligations. Employers may therefore be unable to simply withdraw or modify affected benefits without consulting employees or obtaining agreement to vary existing arrangements.
As a result, employers may find themselves having to:
- Continue providing the benefit and absorb the additional FBT cost;
- Renegotiate employment arrangements with affected employees; or
- Redesign the benefit so that it qualifies for an alternative exemption or concession.
Identify exposure, plan and communicate
Although the FBT changes apply from 1 April 2027, employers should begin identifying affected salary packaging and contractual arrangements now.
- Review employment contracts – start by understanding your existing obligations. Review employment contracts, remuneration policies and enterprise agreements to identify benefits and reimbursement arrangements that may be affected by the new rules.
- Review salary packaging arrangements – identify expense payment benefits and eligible work-related items provided through salary sacrifice. Determine which expenses are covered by the standard deduction and whether another FBT exemption or concession is available.
- Consider alternative rewards – rather than simply removing benefits, consider alternatives that continue to provide value to employees while aligning with the changing FBT landscape. The objective should be to preserve the employee experience while managing the employer’s tax exposure.
- Communicate with employees – many employees are likely to view the $1,000 standard deduction as an unqualified tax saving, with little visibility of the potential implications for employers. Where changes to existing benefits are being considered, early and transparent communication can help avoid misunderstandings and make any future transition easier to manage.
Moving away from deduction-based benefits
While many employers may initially focus on replacing affected benefits, doing so may overlook a broader opportunity. The introduction of the $1,000 standard deduction may be a catalyst for employers to reconsider whether existing benefits remain aligned with what employees genuinely value.
Historically, many workplace benefits were attractive because of their tax outcomes. As those advantages diminish, employers may need to focus less on tax efficiency and more on benefits that support employee wellbeing, engagement and retention.
Examples may include:
- Workforce wellbeing through employee assistance programs, workplace health initiatives, mental health support services and other wellness programs.
- Flexibility and lifestyle benefits such as additional leave, purchased leave arrangements, flexible working initiatives, staff events and employee recognition programs.
- Training and professional development, which not only support employee growth and retention but may also avoid some of the complexities associated with reimbursing employee-incurred expenses.
- Broader remuneration alternatives, including reviewing salaries, superannuation contributions and non-cash benefits.
The employers most likely to adapt successfully will be those that move beyond traditional reimbursement models and focus on benefits that support employee wellbeing, flexibility, career development and long-term engagement. Any replacement arrangements should be reviewed carefully to ensure they remain commercially viable, competitive and achieve the intended tax outcome.
In that sense, these reforms may represent more than an FBT change. They may mark the beginning of a broader shift away from deduction-based benefits and towards a more holistic approach to employee reward.
Final thoughts
The FBT implications of the new standard deduction are significant, but they are not universal. The outcome will depend on the nature of the benefit, whether the expense is covered by the standard deduction and, critically, whether it is provided under a salary packaging arrangement.
Employers should identify affected arrangements, check whether another exemption or concession remains available and address any contractual or employee communication issues before the changes take effect. Contact your local Moore Australia office to discuss these changes further.
