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 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.

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, 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.

6.1.1. 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;
  • VPS health insurance scheme; and
  • 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.

6.2. Executive Motor Vehicle Policy

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.

6.2.1. Executive Motor Vehicle Scheme

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:

  • 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.

6.2.2. Conditions for Executive Motor Vehicle Scheme

The table below outlines the conditions for each party under executive motor vehicle scheme arrangements.


  • 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 business 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 use 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 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.

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

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.

Temporary Motor Vehicle Use

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.

6.2.3. Novated Leasing Arrangement

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.


  • 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.

6.3 Fringe Benefits Tax

6.3.1. What is 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.

6.3.2. What are Fringe Benefits?

A fringe benefit is a benefit received by a person in respect to their employment. A benefit includes any right, privilege, service or facility.

6.3.3. Are any Fringe Benefits Exempt from Fringe Benefits Tax?

A number of benefits can be exempt from FBT. Refer to the ATO for more information on exempt benefits.

6.3.4. Are Superannuation Contributions Fringe Benefits?

Salary sacrificed superannuation contributions are employer contributions and are not fringe benefits. Therefore any salary sacrifice into superannuation does not incur FBT liability.

6.3.5. Who Pays Tax on Fringe Benefits?

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).

6.3.6. What are Employers’ Responsibilities?

Employers must:

  • keep records of FBT liability;
  • complete and lodge an annual FBT return with ATO by 21 May each year; and
  • provide executives with a payment summary of the total taxable value of the fringe benefits received in an FBT year exceeding $2,000 (from 1 July 2007). The ATO uses the payment summary in income tests for a number of government benefits, e.g. Medicare Levy.

6.3.7. What are executives’ responsibilities?

Executives must complete a FBT declaration form outlining the business use of any benefit that could be exempt from FBT.

6.3.8. Where can I get more information about 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.