Summary of mandatory requirements and responsibilities
- Executives and employers must comply with ATO advice when entering into salary sacrifice arrangements.
- General government agencies must comply with the Standard Motor Vehicle Policy issued by the Assistant Treasurer.
- Fringe benefits tax is included in the definition of TRP in the PEER Policy.
6.1 What is salary sacriﬁcing?
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:
- Taxable income is reduced.
- The employer may incur a liability to pay fringe beneﬁts tax on the fringe beneﬁts provided. The executive must meet any fringe beneﬁts tax liability that arises from their salary sacriﬁcing arrangement.
- Salary sacriﬁced superannuation contributions are classiﬁed as employer superannuation contributions (not employee contributions) for tax purposes (also called ‘concessional contributions’) – refer to the ATO for more information.
A salary sacriﬁce arrangement can only be entered into for prospective income, that is 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 ATO 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.
6.2 Non-salary beneﬁts
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:
- a motor vehicle obtained through the executive vehicle scheme
- a motor vehicle obtained through a novated leasing arrangement
- a health insurance scheme (subject to the employer participating in a scheme)
- superannuation – salary can be sacriﬁced towards superannuation savings. See Section 7 for information. (Note that special issues may arise for an executive who is a member of a statutory superannuation scheme where superannuation contribution obligations arise through the relevant legislation.)
- Salary sacriﬁcing can incur fringe beneﬁts tax (see Section 6.3). Executives must meet any fringe beneﬁts tax liability that arises from the salary sacriﬁce arrangement.
- The ATO publishes rulings and handbooks for employers detailing salary sacriﬁce items and fringe beneﬁts tax status.
6.3 Executive motor vehicles
One of the beneﬁts that may be available to executives is access to a motor vehicle. There are two ways of accessing a motor vehicle: an executive vehicle scheme and/or a novated leasing arrangement. The cost of the motor vehicle may be paid by executives through a salary sacrificing arrangement.
Each employer is responsible for determining how it will access vehicles that it will provide to an executive. The employer may determine to:
- subscribe to the executive motor vehicle scheme managed by VicFleet (compulsory for general government agencies)
- establish their own scheme by entering into an agreement with another provider, including for novated lease arrangements
- purchase the vehicle directly.
An executive is not required to access a motor vehicle as part of their package. Executives who choose to use their own private motor vehicle should not be reimbursed for regular travel to and from work.
An executive can choose an executive vehicle from a list of approved vehicles determined by their employer for business and private use. The scheme is based on sharing costs between the executive and employer.
Adherence to the Government’s Standard Motor Vehicle Policy (SMVP) is a requirement for all Victorian general government departments and agencies and should be used as a guide for all other public entities. It is to be applied consistently with the requirements of all relevant legislation, policies and contractual arrangements. VPSC has published a motor vehicle costing methodology, which is mandatory for the VPS and can be used as a model for public entities. Further information regarding the vehicle costing methodology is provided in Appendix 5.
Beneﬁts of an executive motor vehicle scheme
- The beneﬁts of this arrangement for an executive may include:
- tax beneﬁts, as costs are deducted from the pre-income tax component of remuneration
- a comparatively inexpensive option for accessing a motor vehicle
- provision of a fuel card
- car parking at work
- car is maintained, insured and serviced by the employer
- provision of accident management services and manufacturer’s roadside assistance.
Conditions for executive motor vehicle scheme arrangements
Below is an outline of the conditions for each party under an executive motor vehicle scheme arrangement through VicFleet and in accordance with the SMVP.
- pays 2/3 of the approved costs of the car plus any accessories agreed with the employer through a salary sacrificing plan
- may claim for more than 1/3 use if a record of usage is kept over a three-month period
- pays for e-TAGs
- observes government motor vehicle policies
- pays the fringe benefits tax associated with the arrangement
- may nominate other persons to use the vehicle for private purposes
- ensures the vehicle is available for business use during business hours, if required.
Note: Vehicles are retained for a maximum of three years or 60,000km, whichever occurs sooner.
- approves the provision of the vehicle
- meets 1/3 of the approved costs for business use
- arranges provision of a fuel card
- provides car parking at work site(s)
- is responsible for the maintenance, insurance and servicing of vehicles, and arranges accident management services and manufacturer’s roadside assistance.
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.
Novated leasing arrangement
An executive may 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 him/her and the ﬁnance company. VicFleet has more information about this arrangement.
- The Government has a contract in place with providers of novated lease arrangements – refer to VicFleet.
- Car parking is not provided by the employer as part of a novated lease or for a privately owned vehicle.
6.4 Fringe beneﬁts tax
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 for 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 meet any fringe beneﬁts tax liability that arises from the salary sacriﬁce arrangement (e.g. vehicle provided under an executive vehicle scheme or novated lease).
- Keep records of FBT liability
- Complete and lodge an annual FBT return with ATO by 21 May each year
- Provide executives with a payment summary of the total taxable value of the fringe beneﬁts received in an FBT year exceeding $2,000. The ATO uses the payment summary in income tests for a number of government beneﬁts, e.g. Medicare Levy.
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.