Changes to the otherwise deductible rule

From 1 April 2027, employers will no longer be able to use the “otherwise deductible rule” to reduce the taxable value of an expense payment fringe benefit provided to an employee where the expense is:

• work-related;
• covered by the new $1,000 standard deduction; and
• provided under a salary sacrifice arrangement.

This includes where an employer pays for, or reimburses, work-related expenses such as home office expenses, home phone or internet expenses, or self-education expenses.

When the rule still applies

The otherwise deductible rule can continue to apply where the expense is:

• not covered by the standard deduction; or
• covered by the standard deduction, but the benefit is not provided under a salary sacrifice arrangement.

Changes to the work-related item exemption

Also from 1 April 2027, certain work-related items will no longer qualify for the FBT exemption where they are provided under a salary sacrifice arrangement. These include:

• portable electronic devices;
• computer software;
• protective clothing; and
• briefcases and tools of trade.

Eligible work-related items may still qualify for the exemption where they are not provided under a salary sacrifice arrangement.

The “one-item” restriction is removed

Under the changes, employers may be able to provide an employee with more than one eligible work-related item in an FBT year, even where the items have the same or substantially identical function. The exemption will continue to apply where the items:

• are mainly used for work purposes; and
• are not provided under a salary sacrifice arrangement.

This repeals the general “one-item” restriction on the work-related item exemption from 1 April 2027.

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Please also note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please get in touch with us for assistance with your SMSF, business, bookkeeping and tax requirements. All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation.