How electric vehicle salary sacrifice affects your take-home pay

How electric vehicle salary sacrifice works

When you enter an electric vehicle salary sacrifice arrangement, you and your employer agree that you will receive less before-tax salary in return for your employer providing the use of an eligible electric vehicle (EV) and paying its running costs. This can reduce your taxable income, but the rules around fringe benefits tax (FBT) and reporting are specific.

What makes an electric vehicle eligible for the FBT exemption?

From 1 July 2022, the Australian Taxation Office (ATO) provides an FBT exemption for zero or low emissions vehicles that meet all of the following conditions:

• The benefit is a car benefit.
• The vehicle is a zero or low emissions vehicle (including battery electric vehicles and, until 31 March 2025, plug-in hybrid electric vehicles under certain conditions).
• The car was first held and used on or after 1 July 2022.
• The car is used or available for private use by a current employee or their associates.
• No amount of luxury car tax (LCT) has become payable on the supply or importation of the car.

If the exemption applies, your employer does not pay FBT on the car benefit. However, they must still calculate the taxable value of the car benefit for reporting purposes. provides detailed guidance on these requirements.

How is the taxable value calculated?

Even though the benefit is exempt from FBT, your employer must work out the taxable value using either the statutory formula method (based on the car's cost price multiplied by a flat 20% rate) or the operating cost method. This taxable value is then grossed up using the type 1 gross-up rate (currently 1.8868) and reported as a reportable fringe benefits amount on your income statement or payment summary.

For example, if the taxable value of the car benefit is $7,000, the reportable amount would be $7,000 × 1.8868 = $13,207.60. This amount is not included in your assessable income and you do not pay income tax on it, but it is used in income tests for family assistance, child support, and some government obligations.

Impact on your take-home pay

Your take-home pay after tax and the Medicare levy depends on your salary, the amount sacrificed, and whether you make employee contributions. The After-tax salary site provides tools to estimate your net income. Using the 2026–27 tax rates and the Medicare levy thresholds ($28,011 and $35,013 for singles), you can see how a salary sacrifice affects your disposable income.

Consider Sam's example from the ATO: with a $65,000 salary and a $35,000 car, if Sam sacrifices $17,353 without employee contributions, taxable income drops to $47,647, income tax is $5,082.10, Medicare levy is $952.94, and net disposable income is $41,611.96 (after paying car expenses of $11,500 from after-tax money). If Sam makes employee contributions of $7,000, the sacrifice is only $4,145, taxable income is $60,855, tax is $9,044.50, Medicare is $1,217.10, and after the employee contribution, net disposable income is $43,593.40. The arrangement with employee contributions leaves more cash in hand.

Reporting and government benefits

The reportable fringe benefits amount from an exempt electric vehicle is included in your income tests for the Medicare levy surcharge, HELP repayments, child support, and some tax offsets. It does not affect your assessable income or the standard Medicare levy. The Tax and Medicare guide explains how these thresholds work.

Considerations before entering an arrangement

• Employee contributions: You can make after-tax contributions to reduce the taxable value of the car benefit, which may lower the reportable amount and improve your take-home pay.
• Home charging stations: Providing a home charging station is a fringe benefit and is not exempt from FBT.
• Luxury car tax: If LCT applies, the FBT exemption is lost, and your employer must pay FBT, which may reduce the benefit to you.
• Super guarantee: Your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings, not on the salary sacrificed amount. Salary sacrificed super contributions are separate and count towards the concessional contributions cap.

For more details on salary packaging generally, see Salary packaging and the guide.

Summary

Electric vehicle salary sacrifice can reduce your taxable income and increase your take-home pay if structured correctly, especially with employee contributions. However, the reportable fringe benefits amount may affect your eligibility for certain government benefits. Always check the vehicle's LCT status and the FBT exemption conditions. Use the Clearance tool to estimate your net pay under different scenarios.