Salary sacrifice allows executives to structure their remuneration to best suit personal circumstances.
A salary sacrifice arrangement can only be entered into for prospective income, i.e. before the work is performed or the income derived.
Government policy outlines the items that can be salary sacrificed.
The sum of salary sacrificed items, any fringe benefits tax liability, employer superannuation contributions and salary must equal the executive’s Total Remuneration Package (TRP).
Before entering into a salary sacrificing arrangement, executives should seek independent financial advice and refer to ATO publications on salary sacrificing and fringe benefits tax.
There are two ways for executives to access a motor vehicle: the Executive Vehicle Scheme and/or a Novated Leasing Arrangement. The cost of the motor vehicle can be paid by executives through a salary sacrificing arrangement.
It is government policy that executives meet any fringe benefits tax liability that arises from their salary sacrificing arrangement.
Executives may enter into a salary sacrifice arrangement as part of their total remuneration. In this arrangement, the executive agrees to forego part of their salary in return for the employer providing benefits of a similar value. The amount that is sacrificed forms part of the TRP an executive receives.
Under an effective salary sacrificing plan:
A salary sacrifice arrangement can only be entered into for prospective income, i.e. before the work is performed or the income derived. Once an employee is in receipt of the income it is subject to income tax and cannot be effectively salary sacrificed. The Australian Taxation Office has published reference material and definitive public rulings on the subject of effective salary sacrifice arrangements.
Executives are advised to read the information published by the ATO and obtain independent financial advice before entering into a salary sacrifice arrangement.
Executives are able to include non-salary benefits as part of their TRP. Items that may be salary sacrificed as non-salary benefits include, and would normally be limited to:
Note:
One of the benefits available to executives is the ability to access a motor vehicle. There are two ways of accessing a motor vehicle: the Executive Vehicle Scheme and/or a novated leasing arrangement. Executives are able to select a motor vehicle under each arrangement. The cost of the motor vehicle may be paid by executives through a salary sacrificing arrangement.
The VPS allows executives to choose an approved vehicle from a list of approved vehicles published by VicFleet for business and private use. The scheme is based on sharing costs between the executive and employer. The cost of the motor vehicle to the executive’s total remuneration package is calculated using a formula based on whole of fleet costs.
Benefits of the Executive Motor Vehicle Policy
The benefits of this arrangement for an executive include:
The table below outlines the conditions for each party under executive motor vehicle scheme arrangements.
| Conditions |
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Executive:
Note: Vehicles are retained for a maximum of three years or 60,000km, whichever occurs sooner. |
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Employer:
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All public service employers are to use the standard motor vehicle costing methodology published by the VPSC.
Refer to the VPSC website for the vehicle costing calculator. Further information regarding the vehicle costing methodology appears in appendix F.
Part-time executives may access an executive motor vehicle scheme where the employer agrees. The vehicle cost to a part-time executive is not pro-rated. If a vehicle is made available to a part-time executive, they are expected to meet the full costs from their remuneration package.
An employer may allow the use of an executive motor vehicle to a non-executive who is undertaking an executive role on a short-term temporary assignment. No deductions are made for the temporary vehicle use for the period of the assignment.
An executive can access a motor vehicle solely for private use through a novated lease.
This arrangement is entered into with the agreement of the employer. The vehicle is arranged through a finance company and the employer facilitates the payments through a salary sacrificing arrangement. The executive bears all costs of the vehicle. If the executive’s employment ends, the arrangement continues between themself and the finance company. VicFleet has more information about this arrangement.
Note:
Fringe benefits tax (FBT) is a tax incurred by employers when employees are provided with certain benefits in respect of their employment. Benefits provided through salary sacrificing and some reimbursements of expenses may incur FBT.
A fringe benefit is a benefit received by a person in respect to their employment. A benefit includes any right, privilege, service or facility.
A number of benefits can be exempt from FBT. Refer to the ATO or more information on exempt benefits.
Salary sacrificed superannuation contributions are employer contributions and are not fringe benefits. Therefore any salary sacrifice into superannuation does not incur FBT liability.
Executives must pay, from their TRP, any applicable FBT arising from their access to fringe benefits (e.g. vehicle provided under the Executive Vehicle Scheme or novated lease).
Employers must:
Executives must complete a FBT declaration form outlining the business use of any benefit that could be exempt from FBT.
Employers can find more information about their FBT obligations from the ATO, in particular, the ATO publication Fringe benefits tax – a guide for employers.
Executives are advised to seek independent financial advice to assist their decision making for maximising their benefits. The ATO also has a number of publications on FBT that are useful.