How to Salary Sacrifice a Car
Salary sacrificing a car is a common way to reduce your taxable income while getting a new vehicle. Under a novated lease, your employer agrees to take a portion of your pre-tax salary to cover the car lease and running costs. This lowers your reported salary for tax purposes, meaning you pay less income tax. However, your take-home pay is also lower because the sacrificed amount is deducted before you receive your wages.
How It Works
A novated lease involves three parties: you, your employer, and a finance company. Your employer makes the lease payments from your pre-tax salary, and you drive the car. The lease typically includes running costs such as fuel, maintenance, insurance, and registration. At the end of the lease, you may have the option to purchase the car or enter a new lease.
The key benefit is that you pay for the car with dollars that have not been taxed. For example, if you are on the 30% tax bracket, every dollar sacrificed saves you 30 cents in tax (plus the 2% Medicare levy). But the car is also a fringe benefit, so your employer may have to pay Fringe Benefits Tax (FBT). Many novated leases are structured to minimise FBT, often using the statutory formula method where the taxable value is a flat percentage of the car's cost.
How It Affects Your Pay Compared to the National Average
The national full-time adult ordinary-time average is $2,083.70 per week, or about $108,352 per year (ABS Average Weekly Earnings, May 2026). If you salary sacrifice a car, your taxable income will be lower than this figure, but your total remuneration package (including the car benefit) may be higher. The site's line is the average before any salary sacrifice arrangements.
It is important to distinguish between your salary (the amount you are paid) and your total remuneration. The ABS average and the medians (full-time median $90,532, all-employees median $74,100) are based on earnings before any salary sacrifice. Your take-home pay after salary sacrifice will be less than the average, but you also receive the non-cash benefit of the car.
Tax Considerations
The Australian Tax Office (ATO) sets the rules for salary sacrifice. For the 2026–27 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% (with possible reductions for low-income earners). Salary sacrifice reduces your taxable income, potentially moving you into a lower bracket or reducing your overall tax bill.
However, you cannot salary sacrifice below the national minimum wage. From 1 July 2026, the national minimum wage is $26.44 per hour, $1,004.90 per week, or about $52,255 per year on a 38-hour week (Fair Work). Your salary after sacrifice must still meet this minimum.
State Differences
Your decision to salary sacrifice may also depend on where you live. State full-time averages vary: 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, and the Australian Capital Territory $119,090. If your salary is above the state average, salary sacrificing a car might still leave you with a comfortable take-home pay.
Practical Steps
To salary sacrifice a car, you need an employer that offers a novated lease. Discuss with your HR or payroll department. Choose a car and a lease term (usually 1–5 years). The lease payments are deducted from your pre-tax salary each pay cycle. You will also need to consider the residual value at the end of the lease. Many employers use a salary packaging provider to manage the paperwork.
For more details on how salary figures are calculated, see How the figures are set. For general guides on salary and pay, visit Guides.
Important Distinctions
Remember that the national full-time average is an average of ordinary-time earnings, not total remuneration. Salary sacrifice changes the composition of your pay but does not change the underlying wage rate. The site's line is the average weekly earnings before any salary packaging. The medians from the ABS Employee Earnings survey (August 2025) give a different picture: half of full-time employees earn less than $90,532, and half of all employees earn less than $74,100. These figures are not directly comparable to a salary-sacrificed amount.
Final Thoughts
Salary sacrificing a car can be a tax-effective way to own a vehicle, but it reduces your take-home pay. Always consider your personal circumstances, including your tax bracket, the FBT implications, and whether you need the car. Use the site's line to see where your salary (before sacrifice) sits relative to the national average. If you are considering salary sacrifice, consult a tax professional or your employer's salary packaging provider.