How a salary sacrifice novated lease affects your take-home pay
Your take-home pay varies based on the salary sacrifice arrangement; the Australian Taxation Office example shows net disposable income can increase after accounting for car expenses, but the exact figure depends on your salary, benefits, and employee contributions.
How a salary sacrifice novated lease works
A salary sacrifice novated lease is an arrangement where you give up part of your pre-tax salary in exchange for your employer paying for a car lease and its running costs. The Australian Taxation Office states that this reduces your taxable income, meaning you pay less income tax and Medicare levy. However, the benefit is a fringe benefit and may attract FBT unless you make employee contributions to reduce the taxable value.
Impact on your take-home pay
Your take-home pay after a salary sacrifice novated lease depends on several factors: your salary, the value of the car, lease costs, and any employee contributions. The ATO provides an example for a $65,000 annual salary: without salary sacrifice, net disposable income is $41,912. With a car sacrifice and employee contributions, net disposable income rises to $43,593.40. This shows that salary sacrifice can increase your cash flow if structured correctly. However, your actual take-home will vary.
Comparing to minimum wage and full-time ordinary time
The national minimum wage is $26.44 per hour or $1,004.90 per week, giving an annual full-time equivalent of $52,255. Full-time adult ordinary time earnings average $2,083.70 per week or $108,352 per year (ABS, May 2026). A salary sacrifice novated lease is more common for those on middle to higher incomes, as the tax savings are larger when you're in a higher marginal tax bracket. For someone on the minimum wage, salary sacrifice may still be beneficial but the savings are smaller.
Key rules to remember
- You must enter the arrangement before you perform the work.
- You cannot access the sacrificed salary.
- From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT.
- Salary sacrificed super contributions are additional to your super guarantee.
- You cannot claim a tax deduction for expenses your employer pays under the arrangement.
For more details, see our guides on Salary packaging and Tax and Medicare. You can also use our Take-home pay calculator to estimate your after-tax income without salary sacrifice.
Questions
How does a salary sacrifice novated lease reduce my tax?
A salary sacrifice novated lease lets you pay for a car using pre-tax income, lowering your taxable income. The Australian Taxation Office explains that you and your employer agree to reduce your salary in exchange for the employer paying for the car lease and running costs. Because your taxable income drops, you pay less income tax and Medicare levy. However, the benefit is subject to fringe benefits tax (FBT), which your employer may pass on or you may offset with employee contributions.
Does salary sacrifice affect my Medicare levy?
Yes. The Medicare levy is 2% of your taxable income. By reducing your taxable income through a salary sacrifice novated lease, you also reduce the Medicare levy you pay. If your taxable income falls below the single-person thresholds of $28,011 or $35,013, you may pay a reduced levy or none at all. Note that the Medicare levy surcharge (if you don't have private health insurance) is based on your income for surcharge purposes, which may include reportable fringe benefits.
What happens to my super when I salary sacrifice?
Your employer must still pay the super guarantee (12% from 1 July 2026) on your full ordinary earnings before salary sacrifice, not on the reduced amount. If you also salary sacrifice additional super contributions, those are treated as employer contributions and are not fringe benefits. However, total concessional contributions (including super guarantee and salary sacrifice) must stay within the annual cap to avoid extra tax.