This document is part of the Victorian Public Service executive employment resource.
This section provides information on:
- salary sacriﬁce arrangements;
- executive motor vehicle policy; and
- fringe beneﬁts tax.
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.
Note: Vehicles are retained for a maximum of three years or 60,000km, whichever occurs sooner.
All public service employers are to use the standard motor vehicle costing methodology published by the VPSC.
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 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.
6.3.1. 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?
- 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?
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.