Salary packaging change 'hidden' in draft laws for $1000 deduction

James Deliyannis, a spokesperson for the NTAA, said the unexpected change contained in the Exposure Draft would unnecessarily penalise some employees wanting to salary package certain work-related items.

The change would affect the FBT exemption for eligible work-related items, such as laptops, tablet computers and tools of the trade, that are provided on or after 1 April 2027 under a salary packaging arrangement.

"Currently, this FBT exemption broadly applies where an employer provides an employee with an eligible work-related item, which is primarily for use in the employee’s employment," Deliyannis said.

"From 1 April 2027, the Government proposes to remove this FBT exemption where an eligible work-related item is provided to an employee under a salary packaging arrangement, even where the item will be used primarily for work-related purposes."

Deliyannis said this means that an employer who provides an eligible work-related item to an employee under a salary packaging arrangement from 1 April 2027 will be subject to FBT on the taxable value of that benefit where no other FBT exemption or concession applies.

“This is an unnecessary change that will adversely impact many employees who work for smaller employers with tighter cash flow.  It is not uncommon for these employees to salary package work-related items because of the challenges confronted by these businesses," he said.

"Unfortunately, the additional FBT cost associated with salary packaging these work-related items will ultimately be passed on to the employee."

The NTAA said it wanted the government to explain the policy rationale behind the proposed removal of the FBT exemption.

"This type of change ultimately penalises employees who need these items to better discharge their employment responsibilities," the association said.

Deliyannis said there was also a second salary packaging trap hidden in the draft legislation.

Deliyannis explained that under the proposed changes, where an employer reimburses an employee for a work expense that is covered by the standard deduction under a salary packaging arrangement, the otherwise deductible rule will not be available to reduce the taxable value of that benefit for the employer. This change would also apply from 1 April 2027.

"In this case FBT may be payable in respect of the reimbursement," he said.

The government said that the amendments to the FBTAA within the bill "ensure that the standard deduction cannot be combined with salary packaging arrangements entered into by an employee with their employer that could result in a double tax benefit being received".