Fringe benefits tax and salary sacrifice are linked because most of what you package trades one tax for another: you give up cash salary that would have been taxed at your marginal rate, and your employer takes on an FBT liability at 47% on the non-cash benefit you receive instead.1Australian Taxation Office. Fringe Benefits Tax – Rates and Thresholds Whether that swap saves you money depends on the benefit. Some are fully exempt from FBT and produce a clean tax win. Others generate an FBT bill the employer passes back through a reduced package value, which can wipe out the saving entirely.
When a Salary Sacrifice Arrangement Actually Works
The ATO only treats a salary sacrifice as effective if it is set up before you earn the income. You cannot redirect pay you have already accrued, including leave, bonuses, or commissions.2Australian Taxation Office. Salary Sacrificing for Employees If you try to package something retrospectively, the ATO treats the whole amount as ordinary assessable income taxed at your marginal rate rather than as a fringe benefit.
The arrangement should sit in a written agreement between you and your employer covering the cash wage reduction, the specific benefits provided, and the period the arrangement runs. You cannot retain the option to take the sacrificed amount as cash. Missing any of those elements gives the ATO grounds to treat the arrangement as ineffective, which pushes the tax burden back onto you.3Australian Taxation Office. Salary Sacrificing
How the FBT Cost Gets Calculated
FBT is legally the employer’s tax, not yours. It runs on its own year from 1 April to 31 March.4Australian Taxation Office. How Fringe Benefits Tax Works The rate is 47% for FBT years ending 31 March 2023 through 31 March 2027, matching the top marginal income tax rate plus the Medicare levy. That alignment is deliberate: FBT exists to stop high earners converting salary into tax-free perks.1Australian Taxation Office. Fringe Benefits Tax – Rates and Thresholds
Before applying the 47% rate, the employer grosses up the taxable value of the benefit. Type 1 benefits, where the employer can claim a GST credit, are grossed up by a factor of 2.0802. Type 2 benefits, where no GST credit is available, use a factor of 1.8868. FBT is then 47% of the grossed-up amount.5Australian Taxation Office. Calculating Your FBT The gross-up approximates the pre-tax salary you would have needed to buy the same thing yourself.
Even though you don’t cut the cheque, most employers structure packages so the FBT cost comes out of your total remuneration. That is why understanding the mechanics matters: it decides whether the swap is a saving or a wash.
What Attracts FBT and What Doesn’t
The economics of any package come down to which side of the exempt/taxable line the benefit sits on.
Superannuation Contributions
Salary sacrificing into super is the cleanest strategy because super contributions are not fringe benefits and attract no FBT. Instead of your marginal rate, sacrificed contributions are taxed at 15% inside the fund.6Australian Taxation Office. Understanding Concessional and Non-Concessional Contributions On a 37% or 45% marginal rate the difference is significant.
Sacrificed contributions count as concessional contributions alongside your employer’s super guarantee. The total concessional cap for 2025–26 is $30,000. Going over the cap means the excess is added to your assessable income at your marginal rate plus an interest charge. If your total super balance is under $500,000, unused cap from earlier years can be carried forward.
If your income plus concessional contributions exceeds $250,000 in a year, Division 293 tax adds another 15% on the contributions above that threshold, taking the effective contributions tax to 30%.7Australian Taxation Office. Division 293 Tax on Concessional Contributions by High-Income Earners That still beats 45% but narrows the advantage.
Work-Related Electronic Devices
Laptops, tablets, mobile phones, and portable GPS devices are FBT-exempt when used primarily for work. Tools of trade and protective clothing also qualify.8Australian Taxation Office. Work-Related Items Exempt From FBT These are among the simplest wins to package.
Electric Vehicles
Zero and low-emission cars first sold below the luxury car tax threshold for fuel-efficient vehicles are fully FBT-exempt. For 2025–26 the threshold is $91,387.9Australian Taxation Office. Luxury Car Tax Rate and Thresholds This exemption has driven the popularity of novated leases on EVs.
From 1 April 2025, plug-in hybrids are no longer eligible. A transitional rule preserves the exemption only where the PHEV was already in use before that date and a financially binding commitment to keep providing it was in place. Optional lease extensions or any change to the financial terms ends the exemption.10Australian Taxation Office. FBT on Plug-in Hybrid Electric Vehicles
Petrol and Diesel Cars, School Fees, Loans, Health Insurance
These generate FBT. Private use of a company car attracts FBT whenever the car is available for private use, even sitting in the driveway on a weekend. Employer-paid school fees, childcare, and health insurance premiums are expense payment benefits. Below-benchmark employer loans are loan fringe benefits.4Australian Taxation Office. How Fringe Benefits Tax Works
For cars, the employer chooses between the statutory formula method, which applies a flat 20% to the car’s base value regardless of how much you drive privately,11Australian Taxation Office. Taxable Value of a Car Fringe Benefit and the operating cost method, which splits actual running costs based on a 12-week logbook.12Australian Taxation Office. Car Fringe Benefits Tax – Keeping a Logbook Record Heavy business use usually favours the logbook method.
The Minor Benefits Trap
Benefits under $300 can qualify as exempt minor benefits in general, but the exemption does not usually apply to benefits provided under a salary sacrifice arrangement.13Australian Taxation Office. Minor Benefits Exemption The ATO treats packaged items as part of remuneration regardless of their individual value. The minor benefits rule is aimed at one-off perks like an occasional staff gift, not structured packaging.
Not-for-Profit Caps
If you work for certain not-for-profits, salary packaging is far more generous because your employer qualifies for an FBT exemption cap applied per employee against the grossed-up value of benefits.
- Public benevolent institutions and health promotion charities: $30,000 per employee.
- Public and not-for-profit hospitals and public ambulance services: $17,000 per employee.
Benefits within the cap are exempt; FBT applies only to the excess.14Australian Taxation Office. FBT-Exempt Organisations A nurse at a not-for-profit hospital or a caseworker at a charity can package everyday expenses like rent or mortgage payments up to the cap without any FBT cost. An organisation that qualifies as both a public benevolent institution and a hospital uses the $17,000 cap, not the higher $30,000 one.
The Reportable Fringe Benefits Amount
Once the taxable value of your fringe benefits exceeds $2,000 in an FBT year, your employer must report the grossed-up figure on your income statement.15Australian Taxation Office. Reportable Fringe Benefits for Employees That figure is your reportable fringe benefits amount (RFBA). You don’t pay income tax on it, but it feeds into a long list of government calculations:
- Medicare levy surcharge, if you don’t hold private hospital cover
- HELP and other study loan repayment income
- Family Tax Benefit, Child Care Subsidy, and Parental Leave Pay
- Child support obligations
- The $250,000 Division 293 threshold
- Private health insurance rebate tiers
A large RFBA can save you income tax on paper while costing you government payments or triggering surcharges that offset the saving.16Australian Taxation Office. Consequences of Having a Reportable Fringe Benefits Amount Running the numbers against your own situation before signing a package is worth doing.
Employees of FBT-exempt organisations get a partial concession: only 53% of the RFBA is counted for family assistance and youth income support tests. The full amount still counts for the Medicare levy surcharge and HELP repayments.