How a smart salary novated lease compares to award wages and the national minimum wage
Learn how a smart salary novated lease works, who benefits most, and how it relates to award wages and the national minimum wage in Australia.
A smart salary novated lease is most tax-effective for workers earning above the national minimum wage, typically those on award rates or higher, where the salary index exceeds 48.2.
What is a smart salary novated lease?
A smart salary novated lease is a type of salary packaging where your employer agrees to deduct car expenses from your pre-tax salary. The lease covers the vehicle cost, fuel, servicing, registration, and insurance. Because the payments come from your gross income before tax, your taxable income drops, and you pay less income tax. The arrangement is called a 'novated lease' because the lease obligation is transferred (novated) from you to your employer during the term.
According to, salary packaging works by exchanging part of your salary for a benefit. For example, a $100,000 salary might become $85,000 cash plus $15,000 in car expenses. This reduces your taxable income to $85,000, potentially lowering your tax bill.
Who benefits most from a smart salary novated lease?
The tax saving depends on your marginal tax rate. The higher your income, the more you save. For someone on the national minimum wage ($26.44/hr, annualised $52,255, index 48.2), the marginal rate is 15% (plus 2% Medicare). Packaging $5,000 in car costs saves about $850 in tax. After fees and the residual payment at lease end, the net benefit may be small.
Award-covered workers earn more than the minimum. For instance, a retail employee on a typical award rate might earn around $55,000–$65,000 (retail trade index 75.9). Their marginal rate is 30% (plus Medicare), so the same $5,000 packaging saves about $1,600. That's better, but still modest.
Professionals in fields like IT or engineering (professional index 114.7) earning $100,000+ face a 37% or 45% marginal rate. For them, a novated lease can save $2,000–$3,000 annually, making it worthwhile.
Awards versus the national minimum wage
The national minimum wage is the legal floor: $26.44/hr from 1 July 2026. Modern awards set higher minimums for specific industries and occupations. For example, the Hospitality Industry (General) Award 2020 has rates above the national minimum for most classifications. The Fair Work Commission increased award rates by 4.75% from 1 July 2026, widening the gap.
A smart salary novated lease does not affect your award rate. Your employer must still pay you at least the award minimum. The lease simply redirects part of your pre-tax salary. If your award rate is $30/hr, your gross pay must be at least that; the novated lease reduces the cash you receive but not your entitlement.
How the salary index relates
The Salary Index benchmarks full-time adult ordinary-time earnings at 100 (currently $108,352 annualised). The national minimum wage sits at index 48.2. Award-based industries vary: retail trade index 75.9, accommodation and food services index 72.5, health care index 97.8. The higher your index, the more you stand to gain from a novated lease.
For example, a nurse on a health care award (index 97.8) earning about $106,000 would save roughly $2,500 on a $10,000 packaged car expense (37% marginal rate). A retail worker on index 75.9 earning $82,000 would save about $1,600 on the same package (30% rate).
FBT and electric car exemption
Most novated lease benefits attract fringe benefits tax (FBT), which your employer pays at the top marginal rate. This reduces the attractiveness for employers, so many limit offerings. However, eligible electric cars are FBT-exempt up to the luxury car tax threshold ($91,661 in 2026-27). This makes electric novated leases very tax-effective. notes that the exemption applies to cars held from 1 July 2022.
Not-for-profit employers often have FBT concessions, allowing them to offer salary packaging with higher caps. For example, healthcare and charity workers can package up to $15,900 for living expenses (including rent or mortgage) plus $2,650 for meal entertainment. These caps are separate from a car lease.
Practical considerations
Before signing a smart salary novated lease, check:
- Your employer offers salary packaging.
- The vehicle is under 12 years old at lease end and worth at least $5,000.
- You understand the residual (balloon) payment – typically 20–30% of the car's value after 3–5 years.
- You can afford the ongoing costs if you leave your job (the lease may need to be transferred).
Salary packaging is not for everyone. The guide recommends professional tax advice to see if it suits your situation.
Summary
A smart salary novated lease can reduce your tax bill, but the benefit grows with your income. For workers on the national minimum wage or lower award rates, the savings are modest. For those on higher award rates or above-award salaries, it becomes more attractive. The arrangement does not change your award entitlements or minimum wage rights. Use the Salary Index to see where your industry sits, and check your pay guides for current award rates.
Questions people ask
Can I get a smart salary novated lease if I'm paid the national minimum wage?
Technically yes, if your employer offers salary packaging. However, the tax benefit is very small because the national minimum wage ($26.44/hr, index 48.2) falls in the 15% tax bracket (after the tax-free threshold). After Medicare levy, your effective tax rate is about 17%. The savings from packaging a car may be outweighed by fees and the residual payment. Most providers recommend a novated lease for employees earning above $60,000–$70,000 to see meaningful savings.
Does a novated lease affect my award entitlements or minimum wage?
No. A novated lease is a salary packaging arrangement that reduces your taxable income, but it does not change your award classification, hourly rate, or minimum wage entitlements. Your employer must still pay you at least the award rate or national minimum wage, whichever is higher. Salary packaging simply redirects part of your pre-tax salary to cover car expenses. Your gross salary (before packaging) must be at least the award rate.
What is the FBT exemption for electric cars and how does it apply to a smart salary novated lease?
Eligible electric cars (including hydrogen fuel cell vehicles) purchased through a novated lease are exempt from FBT, provided the car's first retail price is below the luxury car tax threshold ($91,661 in FY 2026-27). This means your employer does not pay FBT on the car benefit, making the lease more tax-effective for you. Associated expenses like electricity, registration, and insurance are also exempt. The exemption applies to cars held and used on or after 1 July 2022.