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How Salary Sacrifice a Car Affects Your Pay on the Australian Salary Index
Understand how salary sacrificing a car in Australia changes your taxable income and where your pay sits on the national salary index. Learn the rules, benefits, and index impact.
The effect of salary sacrificing a car on your salary index position is uncertain because it depends on your gross salary, the car's cost, and FBT rules; your reported gross ordinary-time earnings may be lower, reducing your index number.
What is salary sacrifice car in Australia?
Salary sacrifice a car means you give up part of your pre-tax salary in exchange for your employer providing a vehicle or paying for a novated lease. The arrangement reduces your taxable income, so you pay less tax. But it also affects where your pay sits on the Salary Index, the national benchmark that compares your gross ordinary-time earnings to the average full-time adult wage.
How the salary index works
The index sets 100 as the national line: $108,352 per year (based on ABS Average Weekly Earnings, May 2026). Your own index is your yearly gross earnings divided by that number, times 100. For example, if you earn $120,000 gross, your index is 111. If you earn $80,000, it’s 74. The index uses gross ordinary-time earnings – the amount before tax, super, or any salary sacrifice deductions.
Where salary sacrifice fits in
When you salary sacrifice a car, your employer reduces your gross salary for tax purposes. But the key question is: does that reduced figure become your “gross ordinary-time earnings” for the index? It depends on how your employer reports it. Many employers report the original salary before sacrifice to the ABS and for super guarantee purposes. Others report the post-sacrifice amount. The how the index works page explains that the index relies on the earnings figure used in the ABS survey. If your employer reports the pre-sacrifice amount, your index stays the same. If they report the post-sacrifice amount, your index drops.
Example: a typical salary sacrifice car arrangement
Let’s say you earn $130,000 a year (index 120). You decide to salary sacrifice a car worth $15,000 per year. Your taxable income becomes $115,000, saving you about $4,500 in tax. But your gross earnings for index purposes might still be $130,000 if your employer reports that way. In that case, your index remains 120. If your employer reports $115,000, your index falls to 106. That’s still above the national line, but it’s a noticeable drop.
Fringe benefits tax and its effect
The ATO applies fringe benefits tax (FBT) to cars provided through salary sacrifice unless the vehicle is used mainly for work. Employers often pass the FBT cost to you, which can reduce the tax benefit. The FBT rate is 47% (including Medicare levy) for 2026–27, but there are exemptions for certain electric cars and novated leases. The topics section covers FBT rules in more detail.
How salary sacrifice compares across states and industries
Your salary index also varies by where you work and what industry you’re in. For example, the ACT has an index of 109.9, while Tasmania is 88.6. If you salary sacrifice a car in a high-index state like Western Australia (106.9), your post-sacrifice index might still be above the national line. In a low-index industry like retail trade (75.9), sacrificing a car could push your index well below average. Check the states and industries pages for current benchmarks.
Super guarantee and salary sacrifice
Your super guarantee is calculated on your ordinary-time earnings before any salary sacrifice. So if you earn $130,000 and sacrifice $15,000, your employer still pays 12% super on $130,000 (the maximum contribution base is $270,830 for 2026–27). That means your super doesn’t shrink. This is a key advantage of salary sacrifice – you reduce tax without hurting your retirement savings.
Tax considerations
Salary sacrifice reduces your taxable income, which can lower your marginal tax rate. For 2026–27, the tax brackets are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above that. Plus a 2% Medicare levy. If you’re in the 30% bracket and sacrifice $15,000, you save $4,500 in tax plus $300 in Medicare levy. But remember, the index is based on gross earnings, not taxable income.
Is salary sacrifice a car right for you?
It depends on your income, your need for a car, and your employer’s policy. If your gross salary is well above the national line, sacrificing a car can save tax without dropping your index too much. If you’re near the national line, a large sacrifice could push your index below 100, which might affect things like mortgage applications or salary benchmarking. Always talk to a tax professional and check your pay guides for award-specific rules.
The bottom line
Salary sacrifice a car can lower your taxable income and increase take-home pay, but its effect on your salary index is uncertain. The index uses gross ordinary-time earnings, and how your employer reports that figure determines whether your index changes. Use the Salary Index to see where you stand, and consider the trade-off between tax savings and your index position.
Questions people ask
Does salary sacrificing a car lower my salary index number?
It can, but it depends on how your employer reports your gross ordinary-time earnings. The salary index is calculated as your yearly gross earnings divided by the national line ($108,352) times 100. If your employer reports the reduced salary after the sacrifice, your index will be lower. However, many employers report the original gross amount for ABS surveys, so your index may stay the same. Check with your payroll department.
How does salary sacrifice a car affect my tax and take-home pay?
Salary sacrifice reduces your taxable income, so you pay less income tax and Medicare levy. For example, if you earn $120,000 and sacrifice $15,000 for a car, your taxable income becomes $105,000. Using 2026–27 tax rates, you save about $4,500 in tax plus $300 in Medicare levy. Your take-home pay increases, but your gross earnings for index purposes may or may not change.
Is salary sacrifice a car worth it compared to the national average wage?
It depends on your income and how much you sacrifice. If your gross salary is above the national line (index 100), sacrificing a portion may still leave you above average. For instance, someone on $130,000 (index 120) sacrificing $15,000 would have a taxable income of $115,000 (index 106). The benefit is tax savings, not a higher index. Always consider FBT and running costs.