How to choose the best salary sacrifice car and understand your take-home pay

Understanding the mix-up between gross salary, package, and take-home

Many job ads list a salary figure that includes super or a total remuneration package. When you see "$100,000 package", that might include your cash salary, employer super guarantee, and possibly benefits like a car. Your actual take-home pay – the amount that reaches your bank account after income tax and the Medicare levy – is based on your taxable income, not the package total.

Salary sacrifice (also called salary packaging) adds another layer. You agree to swap part of your pre-tax salary for a benefit, such as a car. This reduces your taxable income, but it also reduces the cash you receive. The key is to compare your net disposable income – what you have left after tax, Medicare, and any employee contributions – not just the headline salary.

How salary sacrifice works

According to the , salary sacrificing is an agreement between you and your employer to receive less income before tax in return for benefits of similar value. This reduces your taxable income, so you pay less tax. Common benefits include cars, school fees, and childcare costs.

Your employer may have to pay fringe benefits tax (FBT) on the value of the benefit. To reduce FBT, they might ask you to make an employee contribution from your after-tax income. The ATO provides a detailed example for a car salary sacrifice, which we'll look at next.

The best salary sacrifice car example from the ATO

The ATO example uses Sam, who earns $65,000 a year and considers sacrificing a $35,000 car with $11,500 running costs. Three scenarios are compared:

1. Salary only (no packaging): Taxable income $65,000. After income tax ($10,288), Medicare ($1,300), and car expenses ($11,500), net disposable income is $41,912.
2. Salary + car (without employee contributions): Salary sacrifice of $17,353 reduces taxable income to $47,647. Tax ($5,082) and Medicare ($953) are lower. No car expenses paid out of pocket. Net disposable income is $41,612 – slightly less than scenario 1.
3. Salary + car (with employee contributions of $7,000): Salary sacrifice of $4,145, taxable income $60,855. Tax ($9,045) and Medicare ($1,217) are higher than scenario 2, but you make a $7,000 employee contribution. Net disposable income is $43,593 – about $1,680 more than scenario 1.

This shows that the best salary sacrifice car arrangement often involves making employee contributions to reduce FBT. The ATO notes that the reportable fringe benefits amount (taxable value × 1.8868) appears on your income statement but does not affect your tax calculation directly.

How it affects your tax and Medicare

Your taxable income after salary sacrifice determines your income tax using the 2026–27 resident rates:

• Up to $18,200: Nil
• $18,201–$45,000: 15c per $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c per $1 over $45,000
• $135,001–$190,000: $31,020 plus 37c per $1 over $135,000
• Over $190,000: $51,370 plus 45c per $1 over $190,000

The Medicare levy is 2% of taxable income for most full-time workers. If your taxable income falls below the single lower threshold of $28,011, you pay no Medicare levy. Between $28,011 and $35,013, you pay a reduced rate (10c per $1 over the lower threshold). Above $35,013, the full 2% applies. Salary sacrifice can push you into a lower bracket, reducing both income tax and Medicare.

Remember that super is separate. Your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings, not on the sacrificed amount. Salary sacrificed super contributions are treated as employer contributions and count towards the concessional cap ($32,500 for 2026–27).

What to watch out for

• FBT changes: From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT. Check future rules.
• Government benefits: A lower taxable income may affect child support, family tax benefit, or the Medicare levy surcharge (if you don't have private health insurance).
• Employee contributions: These are after-tax payments that reduce the FBT your employer pays. They can improve your net position, as shown in the ATO example.
• Not all employers offer it: Salary packaging depends on your employer's policy. Some industries (e.g., not-for-profit) have special FBT concessions.

For a personalised estimate, use the Take-home pay calculator on this site, which applies the current tax and Medicare rates. You can also explore the Salary packaging guide for more details.