While many employees can sacrifice salary in exchange for most work-related purchases, it is essential that employers are aware of FBT when working out the expense that will replace the income in a salary sacrifice arrangement. Employees should also be wary that if their employer has to pay FBT, that cost will most likely be passed on to them under a salary sacrifice arrangement.
If an employee needs to purchase equipment for their work, they can work out a salary sacrifice with their boss to buy the equipment and reduce their personal tax bill if:
- the piece of equipment is considered to be ‘a tool of trade’
- the piece of equipment is used primarily for work purposes
- the piece of equipment is the only tool received during the year with that function, and;
- if both the employee and employer have agreed to undertake the salary sacrifice arrangement beforehand.
There are particular types of benefits an employer can provide to their employee that may trigger an FBT liability if provided under a salary sacrifice arrangement. These include cars, property and expense payments.
However, there are certain fringe benefits that are specifically exempt from FBT under the law. These work-related FBT exemptions can be beneficial to employees under a salary sacrifice arrangement. To be exempt, a purchased item must be:
- a portable electronic device
- an item of computer software
- an item of protective clothing
- a briefcase
- a tool of trade