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

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).

Employers must:

  • 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.