How car lease salary packaging affects your gross pay, super, and tax

What is car lease salary packaging?

Car lease salary packaging is an arrangement where you give up part of your pre-tax salary in exchange for the use of a car, typically through a novated lease. The employer pays the lease and running costs, and your taxable income is reduced by the amount sacrificed. This is a common benefit in Australian workplaces, especially for employees in higher tax brackets.

How it affects gross pay and the salary index

The Salary Index is a benchmark that compares your gross full-time adult ordinary-time earnings to the national line of $108,352 per year (index 100). This gross figure is what you earn before any salary sacrifice, tax, or super. Car lease salary packaging does not alter that gross pay for index purposes. If your annual gross salary is $90,000, your index is 83.1, regardless of whether you package a car. The index remains a useful tool to see where your base pay sits relative to the national average, by state or industry. For example, the index for professional, scientific and technical services is 114.7, while retail trade is 75.9. Your gross pay—and therefore your index—is unchanged by the packaging arrangement.

Impact on super

Super guarantee contributions are calculated on your ordinary time earnings. When you salary sacrifice for a car lease, your ordinary time earnings are reduced by the sacrificed amount. The super guarantee rate is 12% from 1 July 2026, up to the maximum contribution base of $270,830. So if your gross salary is $100,000 and you sacrifice $15,000 for a car, your super contributions drop from $12,000 to $10,200. That’s $1,800 less going into your super each year, which can compound significantly over time. Some employers allow you to make additional voluntary contributions to offset this, but that uses after-tax money. It’s important to factor in the long-term cost when deciding on salary packaging.

Impact on tax

The main attraction of car lease salary packaging is the tax saving. By reducing your taxable income, you pay less income tax and Medicare levy. Using the 2026–27 resident tax rates (excluding Medicare levy reduction or surcharge), a $10,000 sacrifice for someone earning $90,000 (marginal rate 30%) saves about $3,000 in tax plus $200 in Medicare levy, total $3,200. For someone earning $150,000 (marginal rate 37%), the saving is larger. However, you also need to consider fringe benefits tax (FBT). The employer may pay FBT on the car benefit, which can be passed back to you as a reduction in your salary package. The net benefit depends on the car’s value, usage, and whether you have a valid FBT exemption (e.g., for electric vehicles under the $89,332 threshold). Always check the terms of your lease.

Considerations and trade-offs

Car lease salary packaging is not a free lunch. While you save tax, you lose super and may face FBT costs. The how the index works page explains that the index is a gross benchmark, so your packaging doesn’t change your position on the national line. But your take-home pay and retirement savings are affected. For example, a worker in New South Wales (state index 101.2) earning $109,658 gross might package a car and see their taxable income drop to $99,658, saving tax but reducing super. The net benefit should be compared to simply buying the car with after-tax money. Also, award or enterprise agreement conditions may limit salary packaging. The topics page covers more on salary sacrifice and benefits.

Example scenario

Consider a full-time employee in Victoria (state index 98) earning $106,137 gross. Without packaging, their index is 98.0. If they salary sacrifice $12,000 for a car lease, their taxable income becomes $94,137. Tax saved (at 30% marginal rate plus Medicare) is about $3,840. Super drops from $12,736 to $11,296, a loss of $1,440. Net immediate gain is $2,400, but the super loss compounds. The employee also needs to account for any FBT that the employer passes on. This example uses the reference figures and tax brackets, but individual results vary.

Final thoughts

Car lease salary packaging can be a useful way to reduce tax, but it’s not purely about gross pay. Your salary index remains based on your full gross earnings, so it’s a stable benchmark. The real impact is on your taxable income, super, and overall financial position. Always review the total package, including FBT, and consider your long-term super goals. For more on how pay compares across Australia, see the states and industries pages.