The true cost of work perks.

We get it. When it comes to work perks, it’s hard to say no — whether it’s a fun Christmas party, a weekend-ready company car, or a fully paid conference trip. But behind the scenes of these fringe benefits is a complex and often costly layer of tax law that can leave both employers and employees out of pocket. So, is FBT worth the hassle? 

What is a fringe benefit? 

A fringe benefit is essentially the non-cash part of your pay — something extra your employer provides in addition to your salary. Unlike a work-related expense that clearly benefits the business, such as tools or training, fringe benefits are more personal in nature.

The ATO recognises that employers like to keep staff happy, but it also sets strict limits. If the benefit is valued over $300, fringe benefits tax (FBT) may apply.

This $300 limit covers things like the Christmas party and a gift. But beyond that, there are no restrictions. Your employer could pay your mortgage, private health insurance, or even fund your European holiday. That’s where salary packaging comes in. 

Salary packaging: More bang for your buck? 

In theory, salary packaging can be a smart move. It allows certain expenses to be paid from your pre-tax salary, which reduces your taxable income.

For example, a $1,000 trip might only reduce your take-home pay by $610 if you’re on a 37% marginal tax rate plus the 2% Medicare levy — because the money comes out before tax is applied. 

Sounds great, right? Not always. 

The FBT sting. 

Many people don’t realise is that FBT is charged at 47% — which is very high. It’s equivalent to the top tax rate for high-income earners.

Because it’s so expensive, most regular employers won’t absorb the cost themselves. Instead, they’ll take it out of your total salary package — which means you'll either get fewer perks, or your base salary might be adjusted down to cover it.

So, while salary packaging can be a smart tax move in some cases, in many others, the benefit is cancelled out by the hefty FBT. This can mean that salary packaging ends up leaving employees worse off than if they’d just taken the cash. 

FBT-free options. 

They exist, but they’re limited.

Some items, such as work-related phones, laptops and tablets, may be exempt if they’re used primarily for business purposes. Tools of the trade, protective clothing, and even certain software can also be FBT-free.

There’s also the “otherwise deductible rule”, which allows you to salary-package items you could otherwise claim as a tax deduction — like income protection insurance or professional membership fees.

Vehicles are a grey area. Unless your employer is FBT-exempt or you’re driving an electric car (which has specific concessions), salary packaging a car often results in more cost than benefit—especially when you add record-keeping and compliance costs.

Buying the car outright and claiming any work-related costs yourself is often the more financially effective option, but it may not be as convenient. 

Our two cents on FBT. 

While fringe benefits and salary packaging can offer savings, they often come with hidden tax complications. If you're considering any kind of salary packaging arrangement—or if you're an employer looking to offer staff perks—speak to us first.

And, do it before the financial year ends. May and June are the key months to get your tax planning sorted!

Reach out to learn more and schedule a confidential consultation.