What a smart salary car means for your gross pay, super and tax
Learn how a smart salary car (novated lease) affects your taxable income, super guarantee, and where your gross pay sits on the Salary Index.
A smart salary car does not change your gross ordinary-time earnings index value, but it reduces your taxable income, potentially lowering your tax bracket and affecting your super contributions.
What is a smart salary car?
A smart salary car is another name for salary packaging a car through a novated lease. It is an arrangement with your employer where you use part of your pre-tax salary to pay for a vehicle and its running costs. The idea is to reduce your taxable income while getting a car. As explains, “Your car finance and all usual running costs, including insurance and fuel come out of your salary using a combination of your pre- and post-tax salary.” This can save you thousands, especially with an electric vehicle.
How a smart salary car affects your gross pay and the Salary Index
The Salary Index measures gross full-time adult ordinary-time earnings. The national line is 100, which equals $2,083.70 per week or $108,352 per year (ABS Average Weekly Earnings, May 2026). When you salary package a car, your gross pay on paper does not change – your employer still reports your full salary to the ATO. However, your taxable income is reduced because part of your pay is diverted to the lease. That means your index value (your gross pay divided by the national line times 100) stays the same, but your tax bill shrinks.
For example, if you earn $100,000 a year, your index is about 92.3 (100,000 ÷ 108,352 × 100). After salary packaging a car worth $15,000 in costs, your taxable income falls to $85,000, but your index remains 92.3 because the index uses gross earnings before sacrifice. The real benefit is in the tax you save.
Tax implications of a smart salary car
Salary packaging a car lowers your taxable income, which can push you into a lower marginal tax bracket. For 2026–27, resident tax rates 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 $190,000. Plus a 2% Medicare levy. If you are in the 30% bracket, every dollar you salary package saves you 30 cents in tax (plus 2 cents Medicare).
Electric vehicles get an extra advantage. The site notes that “Fringe Benefits Tax (FBT) exemption available for eligible electric or hydrogen cell vehicles purchased through a novated lease up to the Luxury Car Tax limit ($91,661 in FY 2026-27).” This means no FBT is payable on the car, so you can salary package the full cost without extra tax. For a non-EV, FBT may apply unless you use the employee contribution method (ECM) to reduce it.
Super guarantee and your smart salary car
The super guarantee is 12% from 1 July 2026, up to a maximum contribution base of $270,830. Your employer must pay super on your ordinary-time earnings. If your salary packaging reduces your ordinary-time earnings (the amount your employer uses for super calculations), your super contributions could drop. For instance, if your gross salary is $100,000 and you salary package $15,000, your employer might only pay 12% on $85,000 ($10,200) instead of $12,000. That is a $1,800 loss in compulsory super.
However, some employers calculate super on your pre-sacrifice salary. Check your award or agreement. You can also make voluntary salary sacrifice contributions to super to top up. The Salary Index has more on how super interacts with pay.
What can you include in a smart salary car?
A novated lease can bundle almost all car costs: finance, fuel or EV charging, servicing, tyres, registration, comprehensive insurance, and roadside assistance. lists “fuel or EV charging costs … servicing, maintenance and tyres … registration and insurance” as typical inclusions. This makes budgeting easier because you pay one regular amount from your salary.
State and industry context
Your gross pay index varies by state and industry. For example, the national index is 100, but Western Australia sits at 106.9 and Tasmania at 88.6. If you work in mining, the industry index is 154.7; in retail trade it is 75.9. A smart salary car does not change these benchmarks, but your tax savings depend on your marginal rate, which is tied to your gross pay. See states and industries for more.
Caveats to consider
Not every employer offers salary packaging. It is more common in not-for-profit, health, and government sectors. The benefits also depend on your personal circumstances. The site advises: “Before entering into any salary packaging or novated leasing arrangement, you should consider your objectives, financial situation and needs, and seek appropriate legal, financial or other professional advice.” Also, the FBT exemption for EVs has strict eligibility – the car must be below the luxury car tax threshold and meet the definition of an electric or hydrogen cell vehicle.
The bottom line
A smart salary car is a legitimate way to reduce your tax bill by using pre-tax income for a car. It does not change your gross pay index, but it lowers your taxable income. The biggest savings come with an FBT-exempt electric vehicle. Just watch how it affects your super guarantee – you may need to adjust your voluntary contributions. For more on how pay is measured, see how the index works and explore topics.
Questions people ask
How does a smart salary car reduce my tax?
A smart salary car (novated lease) lets you pay for the car and its running costs from your pre-tax salary. This lowers your taxable income, so you pay less income tax. For example, if you earn $100,000 and salary package $15,000 in car costs, your taxable income drops to $85,000, moving you from the 30% tax bracket to a lower effective rate. The exact saving depends on your marginal tax rate and the FBT treatment of the vehicle.
Are electric vehicles treated differently for salary packaging?
Yes. Eligible electric or hydrogen cell vehicles purchased through a novated lease up to the luxury car tax limit ($91,661 in FY 2026-27) are exempt from fringe benefits tax (FBT). This makes EVs even more tax-effective. The FBT exemption applies to the car's base value and running costs, meaning you can salary package the entire amount without incurring FBT. Check the ATO website for full eligibility criteria.
Does salary packaging a car affect my super guarantee?
Yes, it can. The super guarantee (12% from 1 July 2026) is calculated on your ordinary-time earnings, which may be reduced by salary sacrifice arrangements. If your salary packaging reduces your gross salary for super purposes, your employer's compulsory super contributions could be lower. However, some employers calculate super on your pre-sacrifice salary. Always check your employment contract or award. You can also make additional voluntary super contributions to offset any reduction.