Employer guide to the 2027 changes to work-related expenses
What employers need to know about the 2027 changes to work-related expenses
The Australian Government and the Australian Taxation Office (ATO) have announced changes to the Fringe Benefits Tax (FBT) treatment of salary packaged work-related expenses. The changes start on 1 April 2027, the beginning of the 2027–28 FBT year.
They follow the introduction of a new $1,000 standard deduction for work-related expenses, which applies from the 2026–27 income year. Together, these changes affect what your employees can salary package and how salary packaging is explained to your staff.
This guide covers what's changing, what isn't, what it means for your staff and how we'll manage the changes with you.
In this article
- The new $1,000 standard deduction
- What's changing from 1 April 2027
- What isn't changing
- What this means for your staff
- What we'll do and what you need to do
1. The new $1,000 standard deduction
In effect from the 2026–27 financial year
Eligible employees now receive a standard deduction of up to $1,000 for work-related expenses. The ATO applies it automatically when they lodge their tax return. They don't need to have spent the money or keep receipts.
To be eligible, an employee must be an Australian resident for tax purposes and earn labour income, such as salary and wages. Employees with more than $1,000 in work-related expenses can claim their actual expenses instead, but they'll need written evidence for every expense claimed.
The standard deduction first applies in 2026–27 tax returns, lodged from July 2027.
Why it matters for employers: an expense can't receive two tax benefits. If an employee salary packages a work-related expense, they generally can't also claim it as a deduction. This is the reason behind the FBT changes below.
2. What's changing from 1 April 2027
There are two changes. Both apply only to work-related expenses provided through a salary packaging arrangement.
Some work-related expenses will no longer be eligible for reduced FBT
Currently, the 'otherwise deductible rule' reduces the FBT on salary packaged work-related expenses, often to nil. From 1 April 2027, this rule will no longer apply to salary packaged expenses covered by the standard deduction, regardless of their value. This includes reimbursements or payments for:
- Home office expenses
- Home phone and internet expenses
- Self-education expenses
Some work-related items will no longer be FBT-exempt when salary packaged
The following items will no longer be exempt from FBT when provided through salary packaging:
- Portable electronic devices, such as laptops, tablets and mobile phones
- Computer software
- Protective clothing
- Briefcases
- Tools of trade
What this means: from 1 April 2027, these expenses will no longer be tax-effective for your employees to salary package. We'll manage the changes to your salary packaging program, so there's nothing you need to change in how these expenses are offered.
3. What isn't changing
Everything else in salary packaging stays the same. These changes don't affect novated leasing, meal entertainment or your employees' general salary packaging cap.
Some work-related expenses can still be salary packaged. Professional association memberships, union fees and income protection insurance aren't covered by the standard deduction, so they're unaffected.
Work-related items you provide directly stay FBT-exempt. Where you provide an eligible work-related item outside a salary packaging arrangement, and it's mainly used for work, it remains exempt from FBT.
This exemption is also expanding. From 1 April 2027, you'll be able to provide an employee with more than one item with the same or substantially identical function in an FBT year and keep the exemption. The current limit of one exempt item per employee per FBT year is being removed, and the exemption extends to all employers, not just small businesses.
4. What this means for your staff
For most employees, the impact will be small. Many will receive the $1,000 standard deduction automatically, with no receipts required.
Employees who currently package work-related expenses will be the most affected. Here's what they need to know:
- They can still package work-related expenses until 31 March 2027. This includes devices such as laptops, tablets and mobile phones, as long as the usual eligibility rules are met. The full cost needs to be deducted from their pay by their last pay run in March 2027, so they should allow enough time.
- The standard deduction is automatic. Eligible employees receive up to $1,000 for work-related expenses when they lodge their tax return. They don't need to do anything or keep receipts.
5. What we'll do and what you need to do
What we'll do
- Update the salary packaging options available to your employees from 1 April 2027.
- Communicate the changes to your employees before they take effect.
- Help employees package eligible work-related expenses under the current rules until 31 March 2027.
- Answer your employees' questions about the changes.
What you need to do
- Brief your HR, payroll and finance teams on the changes.
- Update any internal policies, intranet pages or onboarding material that mention salary packaging work-related expenses.
- Review the work-related items your organisation provides directly. With the exemption expanding, this may now be a simpler option for some roles.
How we can help
Have questions about the changes or how they affect your organisation? Contact your account manager or get in touch with our team.
Read more about the changes on the ATO website.
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