Salary sacrificing and novated leases
By Category Manager, Michael Franzmann
Employers who offer salary packing services to employees play a pivotal role in enhancing both the attraction and retention of their staff. By offering employees the option to sacrifice a portion of their salary for specific benefits such as cars, loan repayments, school fees etc, employers create a more appealing and flexible remuneration package. This not only demonstrates a commitment to the well-being of their workforce but also provides employees with valuable incentives beyond their base salary. The ability to tailor remuneration to individual needs fosters a sense of empowerment and personalisation, making the workplace more attractive. Salary sacrifice initiatives can also contribute to staff retention by fostering a positive company culture that is seen to prioritise employee satisfaction and financial well-being.
Salary Packaging or salary sacrificing is a great way for employees to restructure their salary by using pre-tax income to purchase a range of everyday items and reduce the amount of income tax they pay. This is an Australian Tax Office (ATO) approved process where an employee agrees with their employer to forego part of their income before tax and the employer agrees to pay for benefits of similar value on their behalf. Only the remaining income is taxed resulting in the employee paying less tax.
Whilst there are no restrictions on the types of benefits that can be included in a salary sacrifice arrangement, most employers would have an established list of the benefits that they have agreed to package. These are made up of Fringe benefits and Exempt benefits. Fringe benefits, such as cars, shares, loan repayments, school fees, childcare costs or other goods attract a Fringe Benefits Tax (FBT) that the employer must pay. Employers may require employees to contribute towards this cost to reduce the amount of FBT they are obligated to pay. Exempt benefits do not attract FBT and these are generally items that would be used for work purposes, for example, computer software, portable electronic devices, protective clothing or trade tools. Employees may also elect to salary sacrifice superannuation contributions. These are considered employer contributions and not Fringe benefits if the employer is paying them into a complying superannuation fund. Further information can be found on the ATO here
Novated Leases
One of the more popular salary packaging requests is to obtain a new vehicle through a novated lease option.
A novated lease can be a tax-effective way to purchase a new vehicle. It is an agreement between you, your employer, and the leasing company. You can choose the vehicle you want (this could be new, used or your currently owned vehicle that meets specific conditions) at a competitive price, pay less income tax and save GST on your running costs. A novated lease allows you to pay a portion of the lease and running costs (lease repayments, maintenance, repairs, tyres, registration, insurance, roadside assistance, and fuel) with pre-tax dollars. Having to pay FBT, a post-tax contribution, will also be deducted from your pay. This means you could make significant savings on your next vehicle purchase.
Following the passing of the Treasury Laws Amendment (Electric Car Discount) Bill 2022 by the Federal Government on 28 November 2022, Australian businesses and employees could make significantly more savings should they choose to purchase an electric vehicle (EV). Exemptions in FBT and import tariffs mean that employees who take out a lease on an EV do not have to make a post-tax contribution for FBT, provided that the purchase price of the vehicle is below the luxury car tax threshold for fuel-efficient vehicles, which is currently $89,332 for the 2023-24 financial year. This could save EV drivers with a novated lease significantly more than those leasing a petrol engine vehicle. There are also potential savings for employers who assign EV cars to employees through company fleets.
Local Buy has several companies who specialise in providing Salary Packaging Services for employers and their employees, including novated leasing, through our LB328 People & Wellbeing Services (HR) LGA Arrangement (Category E - Remuneration & Benefits/Salary Packaging Services).
We also have specific Arrangements for the recruitment of talent including LB297 Recruitment Services - Permanent Staff and LB366 Recruitment: Managed Service Providers (MSP) and LB334 Recruitment: Temporary and Labour Hire Services.
If you are looking to purchase EVs for fleet, our LB320 Motor Vehicles and e-Mobility Vehicles LGA Arrangement is available for your needs.
This article is not intended as financial advice. Please consult an expert prior to implementing salary sacrifice in your workplace or as an employee.
