How to Salary Package a Car
Salary packaging a car is a common employee benefit in Australia, often arranged through a novated lease. It allows you to use pre-tax income to pay for a vehicle's lease, fuel, maintenance, insurance, and registration. This reduces your taxable income, meaning you pay less tax and potentially increase your take-home pay. However, the benefit depends on your salary level, the type of car, and how the arrangement is structured under the ATO's fringe benefits tax (FBT) rules.
Understanding the National Full-Time Average
The ABS Average Weekly Earnings survey for May 2026 reports that full-time adult ordinary-time earnings are $2,083.70 per week, or about $108,352 per year. This is the reference line used on this site. If your salary is around this figure, salary packaging a car could save you tax at the 30% marginal rate (plus 2% Medicare levy). For example, packaging $15,000 of car costs reduces your taxable income to $93,352, saving roughly $4,800 in tax and Medicare. Your actual take-home pay would be higher than if you paid for the car with after-tax dollars.
How Salary Packaging Works
A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer deducts the lease payments from your pre-tax salary and pays the finance company. Running costs are also paid from pre-tax salary. The car is usually available for personal use, so FBT applies unless you elect to use the statutory formula method or the operating cost method. The ATO sets the FBT rate at 47% for the 2026-27 year, but many employers use a salary packaging provider to manage the compliance.
Comparing to Medians and Minimum Wage
The full-time median weekly earnings are about $1,674 (ABS Employee Earnings, August 2025), or roughly $90,532 per year. The all-employees median is about $1,436 per week ($74,100 per year). At these levels, the tax savings from salary packaging are smaller because you are in the 30% or 15% tax bracket. The national minimum wage from 1 July 2026 is $26.44 per hour, $1,004.90 per week, or about $52,255 per year on a 38-hour week. At this income, salary packaging a car may not be worthwhile because the tax saving is minimal and the lease costs may exceed the benefit.
State-by-State Averages
Your location also matters. The full-time average varies by state and territory, based on the ABS data. For example, the Australian Capital Territory has the highest average at about $119,090, while Tasmania has the lowest at about $96,008. If you live in a high-average state like Western Australia ($115,825) or New South Wales ($109,658), salary packaging a car could save you more tax because your marginal rate is likely 30% or 37%. In lower-average states, the savings are smaller. See our States and territories page for a full breakdown.
Tax Brackets and Take-Home Pay
For the 2026-27 financial year, the resident 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). If your salary is $108,352 (the national average), you are in the 30% bracket. Salary packaging a car reduces your taxable income, potentially keeping you in the same bracket but reducing the amount taxed at 30%. If your salary is above $135,000, you save at the 37% rate, making the benefit larger.
Practical Considerations
Before entering a novated lease, check if your employer offers salary packaging. Some employers only allow it for certain roles or have a maximum packaging amount. You also need to consider the FBT implications. The statutory formula method uses a flat percentage of the car's value (e.g., 20% for cars bought after 2014) to calculate the taxable value. You can reduce FBT by keeping a logbook to show business use. The ATO provides guidance on FBT and salary packaging.
Using This Site
To see how salary packaging a car affects your take-home pay relative to the national average, use the Place a salary on the line tool. Enter your yearly salary before tax, and the tool shows your weekly and hourly pay (based on a 38-hour week) and the distance from the full-time average of $108,352. You can also compare your salary to job or industry medians on the Job medians and Industry medians pages. For more detailed guides on salary packaging and other pay topics, visit our Guides section.
How the Figures Are Set
The national average is from the ABS Average Weekly Earnings survey, released twice a year (May and November). The medians are from the ABS Employee Earnings and Hours survey, most recently for August 2025. The minimum wage is set by the Fair Work Commission and updated each July. Tax rates are from the ATO. For more on the methodology, see How the figures are set and About this site.
Conclusion
Salary packaging a car can be a smart way to reduce tax and increase take-home pay, especially if your salary is near or above the national full-time average of $108,352. The benefit is smaller for lower incomes, and you need to consider FBT and employer policies. Always consult a tax professional or salary packaging provider for advice tailored to your situation.