What is an expense payment fringe benefit?
An expense payment fringe benefit may arise when an employee incurs an expense for their own benefit and you, as their employer either:
- reimburse them for the expense
- directly pay a third party for the expense.
Expense payment fringe benefits only arise from expenses your employee incurs. Goods or services you provide to an employee, or pay for with your credit card, aren't expense payment fringe benefits. In these cases, the goods or services may be property fringe benefits or residual fringe benefits.
An expense payment fringe benefit may be for:
- a business or private expense, or a combination of both
- an expense incurred by an associate of the employee, such as their partner or relative.
Common expense payment fringe benefits
Common examples of expense payment fringe benefits include, but are not limited to, the reimbursement or payment of:
- car expenses, such as registration and insurance
- car parking (if you don't provide the car parking facilities)
- home mortgage expenses
- cost of acquiring a home desktop computer
- home telephone and internet expenses
- employee personal credit card payments
- health insurance premiums
- self-education expenses.
Changes to salary sacrificed work-related expense payment fringe benefits from 1 April 2027
From 1 April 2027, the fringe benefits tax (FBT) treatment of salary sacrificed work-related expense payment fringe benefits covered by the standard deduction will change.
What's changing?
Currently, you can use the otherwise deductible rule to reduce your FBT liability where your employee could have claimed an income tax deduction for the expense if they paid for it themselves.
From 1 April 2027, you'll no longer be to use the otherwise deductible rule to reduce your FBT liability for salary sacrificed work-related expense payment fringe benefits that are covered by the standard deduction, regardless of value.
What isn't changing?
The change doesn't apply to:
- work-related expense payment fringe benefits provided through a salary sacrifice arrangement that aren't covered by the standard deduction
- expense payment fringe benefits provided outside a salary sacrifice arrangement.
You can continue to apply the otherwise deductible rule to reduce your FBT liability for work-related expense payment fringe benefits that are covered by the standard deduction, if they aren't salary sacrificed.
Example: annual self-education expense
Bec is a pharmacist who attends an annual one-day conference each year in August to maintain and update her professional knowledge.
Bec's annual conference expenses are paid for under a salary sacrifice arrangement with her employer, BeWell Pharmacies Co. Under the arrangement, BeWell Pharmacies Co. pays for the:
- return flights costing $300
- taxi travel costing $150
- conference registration costing $250.
Before 1 April 2027
Bec attends the conference in August 2026. Her employer can use the otherwise deductible rule to reduce the taxable value of the expense payment fringe benefit, because Bec could have claimed an income tax deduction for the expense if she paid for it herself.
As a result, BeWell Pharmacies Co. may have a reduced or no FBT liability in relation to the conference expenses.
Bec cannot claim the expenses as an income tax deduction because she didn't incur the costs herself.
After 1 April 2027
Bec attends the conference in August 2027. Her employer can no longer use the otherwise deductible rule to reduce the FBT liability because:
- the benefit is salary sacrificed, and
- it’s a work-related expense payment fringe benefit covered by the standard deduction.
As a result, the conference expenses will be subject to FBT. BeWell Pharmacies Co. pays FBT on the grossed-up taxable value of the expense payment fringe benefits.
As self-education expenses are covered by the standard deduction, Bec cannot claim the expenses as itemised deductions in her personal income tax return.
End of example
Exempt expense payment benefits
You don't pay FBT if the expense payment fringe benefit is for an exempt benefit, such as a:
- minor benefit, or
- work-related item that is exempt from FBT, such as portable electronic devices, protective clothing or tools of trade.
Exempt benefits differ from reductions and concessions you may be able to apply to the taxable value of an expense payment fringe benefit. If the benefit is exempt, you don't need to calculate its taxable value.
What to do if you provide an expense payment fringe benefit
You need to:
- work out the taxable value of the expense payment fringe benefit
- calculate how much FBT to pay
- keep the appropriate records
- lodge your FBT return
- pay the FBT amount
- check if you need to report the fringe benefit through Single Touch Payroll (or on your employee’s payment summary).
Taxable value of an expense payment fringe benefit
Generally, the taxable value of an expense payment fringe benefit is the amount you reimburse or pay.
Find out how to calculate the taxable value of common expense payment fringe benefits.
Reductions and concessions
You may be able to reduce the taxable value of an expense payment fringe benefit (or eliminate it entirely) if:
- the otherwise deductible rule applies – that is, if your employee could have claimed an income tax deduction for the expense if they had paid for it themselves; you must keep records to support your claim
- your employee incurred the expense to purchase goods or services from your business – these are known as in-house expense payment fringe benefits
- the benefit is eligible for an exemption or concession, such as for relocation expenses or living away from home expenses.
Records you need to keep
For FBT purposes, you must keep records that:
- show how you calculated the taxable value of the expense payment fringe benefit
- support any exemption or concession you used.
Records and the otherwise deductible rule
If you use the otherwise deductible rule, you must have certain documents to demonstrate the extent to which the expense would be deductible to the employee. This is a substantiation requirement. This may include:
- a travel diary kept by the employee or
- an employee declaration.
Or, you can choose to rely on FBT alternative record keeping for expense payment fringe benefits as detailed in the LI 2024/6 legislative instrument and LI 2024/6 explanatory statement.
Learning resources
You can access our free expense payments fringe benefits taxExternal Link course on the Essentials to strengthen your small businessExternal Link online learning platform.