Salary Sacrifice Cars: What They Mean for Your Pay When Comparing Job Offers

Salary sacrifice cars in job ads

When you read a job advertisement, you might see a phrase like “salary sacrifice car available” or “novated lease included”. This is a common benefit, especially in industries such as mining (index 154.7) and professional services (index 114.7). But what does it actually mean for your pay? And how do you compare two job offers when one includes a car and the other offers a higher base salary?

First, understand the Salary Index. The index measures full-time adult ordinary-time earnings, where 100 equals $108,352 per year (based on ABS Average Weekly Earnings, May 2026). This is your gross pay before tax, super, or any salary sacrifice. When you see a salary figure in an ad, you can compare it to the national line. For example, a job offering $120,000 has an index of about 111. A job offering $90,000 has an index of about 83. But if that $90,000 job also includes a salary sacrifice car, the effective pay is harder to judge.

How salary sacrifice changes your taxable income

Salary sacrifice for a car reduces your gross salary for tax purposes. Your employer deducts the lease payments and running costs from your pay before tax. This lowers your taxable income, so you pay less income tax. For the 2026–27 tax year, resident rates are: nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above. Plus 2% Medicare levy. If you sacrifice $15,000 for a car, you save tax on that amount. But the car benefit is subject to fringe benefits tax (FBT). The employer may calculate FBT at 47% of the car's value. Often the employer passes that cost to you, reducing the net benefit.

Impact on super guarantee

From 1 July 2026, the super guarantee is 12% on ordinary-time earnings. If your salary is reduced by salary sacrifice, your employer calculates super on the lower amount. That means less money into your super fund. For example, on a $100,000 base, super is $12,000. After $15,000 sacrifice, super is $10,200. Over time, that difference compounds. So when comparing offers, consider the total remuneration: base salary plus super plus any car benefit after FBT.

Using the Salary Index to compare offers

The how the index works page explains that the index is based on gross ordinary-time earnings. Salary sacrifice does not change your gross earnings for index purposes? Actually, the index uses the employee's ordinary-time earnings before any sacrifice. So if your base salary is $100,000, your index is about 92.3. But your take-home pay may be higher because of tax savings. To compare two offers, you need to estimate your net pay after tax, super, and car costs.

State and industry differences

Your location matters. For example, Western Australia has an index of 106.9 (annualised $115,825), while Tasmania is 88.6 ($96,008). If you are in WA and considering a job with a salary sacrifice car, the higher base pay in that state might make the benefit less attractive. Similarly, industries like retail trade (index 75.9) rarely offer salary sacrifice cars, while mining (154.7) often does. Check the industries page for benchmarks.

What to look for in a job ad

When reading an ad, look for:

• The base salary (before sacrifice).
• Whether the employer pays FBT or passes it to you.
• The type of car (electric vehicles may have FBT exemptions).
• The lease term and residual value.
• Whether super is calculated on the base salary or the sacrificed amount.

Some employers offer a total remuneration package that includes the car benefit. You can ask for a breakdown. Use the pay guides to understand award minimums and enterprise agreements. For example, if you are covered by a modern award, your base rate cannot fall below the award minimum. Salary sacrifice cannot reduce your pay below the award rate.

Example comparison

Offer A: Base salary $110,000, no car. Index 101.5. Super $13,200. Tax (excluding Medicare) about $26,000. Take-home about $84,000 plus super.

Offer B: Base salary $95,000, plus salary sacrifice car worth $15,000 per year. Index 87.7. Super on $95,000 = $11,400. Tax on $80,000 (after sacrifice) about $18,000. Take-home about $62,000 plus car benefit. But you have to pay FBT? If employer pays FBT, net benefit higher. If you pay, it could be $7,000. So net take-home plus car might be similar to Offer A.

You need to calculate your own situation. The topics page has more on salary packaging.

Tax and Medicare levy

Remember that salary sacrifice reduces your taxable income, so you may fall into a lower tax bracket. But you still pay Medicare levy (2%) on your taxable income. The Medicare levy surcharge (if you earn over $90,000 and don't have private hospital cover) is based on your income for surcharge purposes, which includes reportable fringe benefits. So a salary sacrifice car could push you over the threshold.

Final thoughts

Salary sacrifice cars can be a good way to reduce tax if you need a car anyway. But they are not free money. Always compare the total package, not just the base salary. Use the Salary Index to benchmark the base component, and factor in super, FBT, and your personal tax situation. When in doubt, ask the employer for a written breakdown of the total remuneration.

FAQs

What is a salary sacrifice car arrangement?

A salary sacrifice car arrangement, often called a novated lease, lets you pay for a car using pre-tax salary. Your employer deducts the lease payments, running costs, and any FBT from your gross salary before tax. This reduces your taxable income, so you pay less income tax. However, the car benefit is generally subject to FBT, which your employer may calculate and pass on to you. The arrangement is common in industries like mining and professional services, where total remuneration packages include this benefit.

How does salary sacrifice for a car affect my take-home pay?

Salary sacrifice reduces your gross salary for tax purposes, so your take-home pay is higher than if you paid for the car with after-tax dollars. For example, if your base salary is $100,000 and you sacrifice $15,000 for a car, your taxable income becomes $85,000. Using the 2026–27 tax rates (nil to $18,200, 15% to $45,000, 30% to $135,000), you save about $4,500 in tax plus $1,700 in Medicare levy (2%). But you may also have to pay FBT on the car benefit, which can be 47% of the car's value. Your employer may also calculate super guarantee on the reduced salary after sacrifice, so your retirement savings may be lower. Always compare the net effect on your total remuneration.

Should I choose a salary sacrifice car or a higher base salary?

It depends on your personal circumstances. A higher base salary increases your gross pay, which increases your super guarantee and may improve your borrowing capacity. A salary sacrifice car reduces taxable income but may lower super and incur FBT. For example, if you are in a high tax bracket, the tax savings can be significant. However, if you change jobs, the novated lease may be difficult to transfer. Use the Salary Index to compare the base salary component of offers, and consider the total value of the car benefit after tax and FBT. Consult a financial adviser or use a salary packaging calculator.