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Car salary sacrifice: how it affects your gross pay, super, and tax
Car salary sacrifice reduces your taxable income but not your salary index figure. Learn how it interacts with super, tax brackets, and take-home pay in Australia.
Car salary sacrifice does not change your salary index figure, which is based on gross ordinary-time earnings before any sacrifice; the effect on take-home pay depends on your tax bracket and FBT treatment.
What is car salary sacrifice?
Car salary sacrifice is an arrangement where you agree to give up part of your pre-tax salary in exchange for a car, usually through a novated lease. The sacrificed amount is deducted from your gross pay before tax is calculated, which lowers your taxable income. However, it does not change the figure used for the Salary Index – that index is based on your full-time adult ordinary-time earnings before any sacrifice.
How it affects your gross pay and the salary index
The salary index compares your yearly gross ordinary-time earnings to the national line of $108,352 (index 100). If you earn $108,352 and sacrifice $15,000 for a car, your taxable income drops to $93,352, but your index remains 100 because the sacrifice is a post-earnings deduction. The index is a benchmark for your role, not your take-home pay. To see how your state compares, visit the states page.
Superannuation and car salary sacrifice
A common question is whether car salary sacrifice reduces your super. Under Australian law, the super guarantee is calculated on your ordinary time earnings (OTE). Salary sacrifice for a car does not reduce your OTE for super purposes. Your employer must still pay 12% super (from 1 July 2026) on your full salary before sacrifice. For example, if your gross salary is $108,352, your employer contributes $13,002.24 to super, regardless of a car sacrifice. This is different from salary sacrifice into super, which does reduce OTE.
Tax implications
Car salary sacrifice lowers your taxable income, so you pay less income tax and Medicare levy. Using the 2026–27 resident tax rates:
- Nil on the first $18,200
- 15% on income from $18,201 to $45,000
- 30% on income from $45,001 to $135,000
- 37% on income from $135,001 to $190,000
- 45% on income above $190,000
- Plus 2% Medicare levy on taxable income
If you earn $108,352 (index 100) and sacrifice $15,000, your taxable income becomes $93,352. The tax saving is roughly $4,500 (30% of $15,000) plus $300 Medicare levy, so about $4,800 total. The actual saving is larger if you are in a higher bracket. For someone on the national minimum wage ($52,255, index 48.2), the saving is at 15% plus Medicare levy, a smaller benefit.
Fringe benefits tax (FBT)
A car provided through salary sacrifice is a fringe benefit, and FBT may apply. The employer may pay FBT or pass it to you. The reference does not include FBT rates, so the net benefit depends on your employer’s policy. Always review the lease terms.
Examples across industries and states
- A professional in the Professional, scientific and technical industry (index 114.7, about $124,300) sacrificing $20,000 saves tax at 30% or 37%.
- A retail worker (index 75.9, about $82,200) sacrificing $10,000 saves at 30%.
- In Western Australia (index 106.9, $115,825) the saving is at 30%.
- In Tasmania (index 88.6, $96,008) the saving is also at 30%.
See industries for more benchmarks.
How to evaluate car salary sacrifice
- Check your gross salary – your index is based on that, not the sacrificed amount.
- Calculate tax saved – use your marginal rate plus Medicare levy.
- Factor in super – your super is unaffected, so you still get the full 12% on your original salary.
- Consider FBT – ask your employer if they absorb the FBT or pass it on.
- Compare with after-tax car purchase – sometimes a novated lease is cheaper because of fleet discounts and pre-tax savings.
For more on how the index works, see how the index works. The topics page covers related salary packaging.
Summary
Car salary sacrifice reduces your taxable income but leaves your salary index and super base unchanged. The benefit comes from tax savings, but FBT can reduce the net gain. Use the pay guides to understand your award conditions, and always consult a professional.
This explanation uses the on-site reference from the Australian Bureau of Statistics, Fair Work Ombudsman, and ATO rules for 2026–27. No precise figures for a specific car salary sacrifice are provided; the effect is uncertain without specific lease details.
Questions people ask
Does car salary sacrifice reduce my superannuation?
No, not directly. Under super guarantee rules, your employer must still pay the 12% super guarantee (from 1 July 2026) on your ordinary time earnings before the salary sacrifice. For example, if your gross salary is $108,352 and you sacrifice $15,000 for a car, your super is still calculated on $108,352. However, if you also salary-sacrifice into super, that amount reduces your ordinary time earnings for super purposes. Car sacrifice is treated differently.
How does car salary sacrifice affect my tax?
Car salary sacrifice reduces your taxable income because the sacrificed amount is taken from your gross pay before tax. For a resident earning $108,352 (index 100) in 2026–27, sacrificing $15,000 would lower taxable income to $93,352, saving tax at your marginal rate (30% in that bracket, plus 2% Medicare levy). The exact saving depends on your tax bracket. Note that fringe benefits tax (FBT) may apply to the car, and the employer may pass that cost on, which could reduce the net benefit.
Is car salary sacrifice worth it for someone on the national minimum wage?
It can be, but the benefit is smaller because the tax saving is at a lower marginal rate. For a worker earning $52,255 (index 48.2), the marginal rate is 15% plus 2% Medicare levy. Sacrificing $10,000 would save about $1,700 in tax, but the car costs (including FBT) must be covered by the sacrificed amount. The arrangement is more common for higher earners, but anyone can consider it. Check with your employer and a financial adviser.