Salary sacrificing is an arrangement where an employee agrees to forego part of their future salary or wages in return for their employer providing benefits of a similar value. Employees can sacrifice their salary or wages in a variety of benefits including:
- Super
- Car fringe benefits
- Expense payment fringe benefits (i.e. school fees, child care costs, loan repayments)
A common form of salary packaging is a Novated Vehicle Lease, which is a three-way agreement between an employee, their employer and their finance company. It enables employers to provide a significant financial benefit to their employees at little or no cost to the business. The employer makes the monthly lease payments to the finance company and provides a vehicle for the employee’s use as part of the arrangement. The employer is also responsible for the agreed vehicle expenses which are deducted from the employee’s remuneration as part of the salary packaging arrangement.
With a Novated Vehicle Leave, the lease, running costs and Fringe Benefits Tax (FBT) all reduce the employee’s pre-tax earnings. Tax is then calculated on the reduced salary, which effectively means the employees pays less tax and has more disposable income.
The ATO explains when the use of certain vehicles is exempt from Fringe Benefits Tax and provides a list of vehicles which may qualify for the exemption. An employee’s use of a taxi, panel van, utility or other commercial vehicle is exempt if the employee’s private use of the vehicle is limited to:
- travel between home and work
- travel that is incidental to travel in the course of duties of employment
- non-work related use that is minor, infrequent and irregular (for example, occasional use of the vehicle to remove domestic rubbish).
Ellco Group is more than happy to assist you with your salary package prior to signing with your employer.