Section 58X changes effective 1 April 2027 – now law! A valuable FBT exemption available by salary packaging lost.

A relatively low-profile amendment to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will have a significant impact on salary packaging arrangements from 1 April 2027.

Section 58X currently provides an FBT exemption for certain eligible work-related items, including portable electronic devices, computer software, protective clothing, briefcases and tools of trade. The exemption is particularly valuable where these items are acquired through salary packaging.

From 1 April 2027, however, the exemption will no longer apply where the item is provided under a salary packaging arrangement. The change was enacted as part of the legislation (see clause 19 there-of) introducing the Government’s new standard deduction for work-related expenses. (Editors note – for further information see our recent TaxEd article regarding the standard work deduction).

What is changing?

Under the amended section 58X, an eligible work-related item must be:

• primarily for use in the employee’s employment; and
• not provided under a salary packaging arrangement.

The existing rules continue to apply for the FBT year ending 31 March 2027.

Importantly, the section 58X exemption itself is not being abolished. An employer can still provide an eligible work-related item directly to an employee and potentially access the exemption, provided the other requirements are satisfied.

What does this mean in practice?

Consider an employee requiring a $3,000 laptop primarily for work.

Under the current rules, the laptop can potentially be salary packaged without FBT if the section 58X requirements are satisfied.

From 1 April 2027, salary packaging the same laptop will no longer qualify for section 58X – the benefit will be taxable.

The change therefore makes the tax treatment dependent not only on the nature and use of the item, but also on how it is provided.

Why has the Government made the change?

The amendment forms part of the broader package introducing a standard deduction for work-related expenses.

The Government’s policy objective is to prevent employees from obtaining what it regards as a double tax benefit by combining the new standard deduction with salary packaging.

That objective is understandable. However, there is a legitimate question as to whether the section 58X amendment is unnecessarily broad.

The new restriction applies even where an item is genuinely required for work and is used overwhelmingly, or exclusively, in performing employment duties.

For example, two employees may each require an identical laptop for work. If one receives it directly from the employer, section 58X may apply. If the other obtains it through salary packaging, the exemption is lost.

It is therefore arguable that the new rule distinguishes between arrangements that have the same underlying employment purpose simply because they are funded differently.

Removal of the “one item” restriction

On a positive note, there is also an amendment included in the changes which removes a previous restriction in relation to how many benefits could be provided whilst still attracting the FBT exemption.

The amendments remove an existing rule imposing a one per year limit for a property or expense payment eligible work related item benefit where another “… item that has substantially identical functions” was provided earlier in the same FBT year (subject to certain exceptions for “replacement items” and certain items provided by small businesses).

Accordingly, while salary-packaged items will lose the exemption, the continued section 58X exemption will become less restrictive for ordinary employer-provided benefits.

The bottom line

From 1 April 2027, it will no longer be enough for an item to be primarily for work use to qualify for the section 58X exemption. If the item is provided under a salary packaging arrangement, the exemption will not apply.

For employers and salary packaging providers, the message is clear – review section 58X salary packaging arrangements before 31 March 2027. Where an intention existed to permit access to section 58X exemption through salary packaging this should occur prior to the changes taking effect.

The review should consider:

1. which section 58X benefits are currently offered;
2. which are provided through salary packaging;
3. whether the employer could provide the item directly;
4. the FBT consequences of continuing the salary package; and
5. whether employee documentation and communications need to change.

While the Government’s objective of preventing a double tax break for these types of benefits is understandable, there is a legitimate debate about whether denying the exemption for genuinely work-related items merely because they are salary packaged goes further than necessary.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.