Can I salary sacrifice a car? Understanding the impact on your pay
Salary sacrificing a car – typically through a novated lease – is a common way to reduce your taxable income. But how does it affect where your pay sits against the national full-time average? And why might your state or award move the figure off the line? This guide explains the mechanics, the numbers, and the limits.
How salary sacrifice works for a car
When you salary sacrifice a car, your employer deducts the lease payments and running costs from your pre-tax salary. The ATO allows this under certain conditions, such as the car being used for work-related travel. The result is a lower assessable income, which means less tax and Medicare levy. For the 2026–27 financial year, the tax rates are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000. The Medicare levy is 2% before any reductions. By reducing your taxable income, you may drop into a lower bracket or reduce the amount taxed at higher rates.
However, the national full-time average – $2,083.70 a week, about $108,352 a year (ABS Average Weekly Earnings, May 2026) – is calculated on gross ordinary-time earnings before any salary sacrifice. So when you place a salary on the line, the tool uses your gross salary, not the amount after sacrifice. That means salary sacrifice does not change where your pay sits relative to the national line. Your gross salary is still compared to the average.
State differences and the national line
Your state can move your pay off the national line because full-time average earnings vary across Australia. The on-site figures from the ABS show:
- New South Wales: $109,658
- Victoria: $106,137
- Queensland: $106,064
- South Australia: $102,450
- Western Australia: $115,825
- Tasmania: $96,008
- Northern Territory: $103,173
- Australian Capital Territory: $119,090
If you work in Western Australia or the ACT, your state average is above the national line. In Tasmania, it is below. Salary sacrificing a car does not change your state comparison either – the same gross salary is used. But if you are considering a move, the state average gives a benchmark for typical full-time earnings in that location. For more detail, see the states and territories page.
Award and minimum wage considerations
Your award or enterprise agreement may affect whether you can salary sacrifice a car. Some awards restrict salary sacrifice arrangements, especially for lower-paid workers. The national minimum wage from 1 July 2026 is $26.44 an hour, $1,004.90 a week, about $52,255 a year on a 38-hour week (Fair Work). Award minimums rose by 4.75% from that date. If your gross salary is at or near the minimum, salary sacrifice cannot reduce your pay below the minimum wage. Fair Work sets these rules to protect employees.
For workers on award rates, the comparison to the national average is still based on your gross ordinary-time earnings. The full-time median is about $90,532, and the all-employees median is about $74,100 (ABS Employee earnings, August 2025). These medians give a different picture from the average, which can be pulled up by high earners. If your award rate is below the median, you are not alone – many workers are below the national full-time average.
Putting it together
Salary sacrificing a car is a legitimate way to reduce tax, but it does not change your gross salary for comparison purposes. The national line, state averages, and medians all use gross earnings before sacrifice. Your award or agreement may limit the arrangement, and the minimum wage sets a floor. To see where your gross salary sits, place a salary on the line. For more on how the figures are set, visit how the figures are set.
Remember: the ABS Average Weekly Earnings is published twice a year, for May and November. The figures here are from May 2026. Medians are from August 2025. Always check your own pay against the most current data available on this site.