How a salary packaging novated lease affects your take-home pay

What is a salary packaging novated lease?

A salary packaging novated lease is a three-way agreement between you, your employer, and a finance company. You sacrifice part of your pre-tax salary to cover car lease payments and running costs. This reduces your taxable income, so you pay less income tax and Medicare levy. However, the arrangement is not always a straight saving – your employer may have to pay fringe benefits tax (FBT) on the car benefit, and that cost can be passed back to you.

As the Australian Taxation Office explains, salary sacrificing (also called salary packaging) means you and your employer agree for you to receive less pre-tax salary in return for benefits of similar value. The benefit – in this case, a car – replaces what you would otherwise receive as cash.

How a novated lease changes your take-home pay

Your take-home pay is the amount that reaches your bank account after income tax and the Medicare levy. With a salary packaging novated lease, your taxable income drops, so the tax withheld from your pay also drops. But your employer may ask you to make an employee contribution to reduce the FBT they owe. That contribution is paid from your after-tax salary, which reduces your take-home further.

The ATO provides a worked example for a car valued at $65,000 annual remuneration. In scenario 1 (no packaging), the employee has a taxable income of $65,000, pays $10,288 income tax plus $1,300 Medicare, and after paying $11,500 car expenses from after-tax money, has a net disposable income of $41,912. In scenario 2 (salary sacrifice without employee contributions), taxable income falls to $47,647, tax drops to $5,082, Medicare to $953, and no car expenses are paid from after-tax money – net disposable income is $41,612 (slightly less because of FBT). In scenario 3 (with a $7,000 employee contribution), taxable income is $60,855, tax $9,045, Medicare $1,217, and after the contribution, net disposable income is $43,593 – a clear gain.

This shows that the key to making a salary packaging novated lease worthwhile is structuring employee contributions to minimise FBT. The ATO notes that the reportable fringe benefits amount can affect your income statement and may impact government benefits, child support, and study loan repayments.

Medicare levy and the thresholds

The Medicare levy is 2% of your taxable income. For the 2026–27 year, the latest published single-person thresholds are $28,011 and $35,013. If your taxable income after salary sacrifice falls below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, you pay a shade rate of 10 cents per dollar over the lower threshold. Above $35,013, you pay the full 2%. Because a salary packaging novated lease reduces your taxable income, it can potentially lower your Medicare levy – but only if your income is near those thresholds.

For most full-time workers, taxable income will remain above $35,013, so the levy is simply 2% of the reduced amount. The Moneysmart website notes that salary packaging might help you pay less income tax, but whether it's worth it depends on your income, the benefits available, and any associated costs.

Super guarantee and salary sacrifice

Salary sacrificed super contributions are treated as employer contributions and are not subject to FBT. However, a novated lease is a fringe benefit, not super. Your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings as if no salary sacrifice existed. That means your super is calculated on your pre-sacrifice salary. The concessional contribution cap for 2026–27 is $32,500, which includes your employer's super guarantee and any salary sacrifice contributions to super. A novated lease does not count toward that cap.

What to watch out for

• FBT: Your employer may pass on the FBT cost through lower salary packaging offers or require employee contributions. Always model the net effect.
• Reportable fringe benefits: The taxable value of the car (grossed up by 1.8868) appears on your income statement. This can affect your eligibility for family tax benefits, child support, and the Medicare levy surcharge.
• No double-dipping: You cannot claim a tax deduction for car expenses that your employer pays through the package.
• Effective arrangement: You must enter the agreement before you earn the salary. You cannot sacrifice salary after you've already earned it.

Calculating your take-home with a novated lease

To estimate your take-home pay, start with your gross salary, subtract the salary sacrifice amount (the lease payments and running costs), then apply income tax and the Medicare levy on the reduced taxable income. Then subtract any employee contributions you make from after-tax pay. The result is your net disposable income – the amount you can spend or save.

Use the Take-home pay guide on this site for a general calculator, but remember that salary packaging requires a more detailed model. The Salary packaging topic page has further resources.

Final thoughts

A salary packaging novated lease can boost your take-home pay if structured correctly, especially with employee contributions to neutralise FBT. But it's not a one-size-fits-all solution. Your individual circumstances – income level, marginal tax rate, and the type of car – all matter. Always review the numbers with your employer's payroll or a financial adviser before signing.