Salary Sacrifice Car Guide: Maximise Your Savings in 2024

How much could you save by salary sacrificing your car?

Salary packaging a car
Salary packaging a car
How a novated lease works, explained by Money Matchmaker

How does salary sacrificing a car work?

With a salary sacrifice car arrangement, you pay for your vehicle and running costs through your employer using pre-tax salary. This happens through a novated lease which involves you, your employer and a novated lease company

Here’s how it works:

  • You get your choice of new or used car (with a GST discount) for unlimited personal use through a novated lease provider.
  • Your employer deducts money from your pre-tax salary to cover the regular lease payments and ongoing car running expenses (a GST discount also applies to the running costs).
  • At the end of the salary sacrifice term (1-5 years), you can make the residual payment to own the car outright, you can extend the lease for a new term, or you can upgrade the car and start a new lease.

Salary sacrifice car benefits

Best match guarantee

GST saving on vehicle purchase price (up to $6,191)

Consolidating debt

Save $1,000s more in income tax

Understanding Car Loans

Salary package car running costs (with a GST discount)

Novated Lease

Pay $0 fringe benefits tax on eligible EVs

In our salary sacrifice car guide:











What is salary sacrificing?

Salary sacrificing (or 'salary packaging') means using part of your salary to pay for eligible personal expenses through your employer, instead of receiving it as take-home pay.

The salary sacrifice deductions come from your pre-tax salary, reducing your taxable income so you pay less income tax.

In Australia, a wide range of expenses can be salary sacrificed, including:

  • A car and its runnings costs (through a novated lease)
  • Superannuation contributions
  • Mortgage repayments
  • School fees and child care

The expenses you can salary sacrifice will vary from employer to employer. The tax implications are also different depending on what the expense is.

Novated lease tax savings

Salary sacrifice car tax benefits

“For employees the main tax advantage is the payment of expenses through pre-tax income,” tax expert Ed Beasley of chartered accountants Smith Feutrill told

“The added benefit is that GST on the car is claimed by the employer, and this saving is passed onto the employee,” he said.

Since 2022, salary sacrificing an eligible electric vehicle brings significant extra tax benefits as there is a fringe benefits tax exemption.

Be sure to get tax advice from a qualified advisor if you want to know how salary packaging a car might impact you.

Salary sacrifice car example

Salary sacrifice car: total cost comparison

This example shows the potential cost saving available by paying for a car through salary sacrifice over a 5-year term, versus paying with a car loan or using cash.

The example is based on a Tesla Model 3 (RWD) with driveaway price of $64,201. The calculation assume an NSW buyer with annual pre-tax salary of $120,000 and 15,000km driven annually.

Estimated vehicle running costs include comprehensive car insurance, servicing, registration and tyres. Example assumes a finance interest rate of 7.24% p.a.'s analysis shows salary sacrificing this vehicle would mean a total tax saving of $37,187 over the term of the lease.

Is salary sacrificing a car worth it?

Salary sacrificing a car is a popular way to pay for a vehicle, with some major tax advantages you can’t get with a car loan or paying for a vehicle with your cash savings.

But the benefits do vary from person to person. Here are some of the main novated lease pros and cons worth weighing up before you decide if salary sacrificing is worth it for you.

Salary sacrifice car advantages

Over the duration of a salary sacrifice agreement, it’s possible to save tens of thousands of dollars in income tax and GST, compared to paying for your car and related costs in the conventional way.

Being able to bundle more or less all of your car costs into one payment as part of your novated lease deal (it's automatically deducted from your salary) is very convenient for a lot of drivers. It means no more budgeting for the sometimes unpredictable costs of keeping a car on the road.

You can salary sacrifice pretty much any car (new or used) for a duration between one and five years. You also have control over which car running costs to include, with the flexibility to change your budget down the track if your driving habits change.

Salary sacrifice car disadvantages

Most non-salary employee benefits are subject to fringe benefits tax. This is payable by your employer but the cost is usually passed on to employees. It offsets some of the tax savings available to employees who salary sacrifice a car.

That said, salary sacrifice providers usually establish the agreement in a way that ensures there is no FBT payable by your employer.

Electric vehicles valued below the luxury car tax (LCT) threshold are exempt from FBT.

When the salary sacrifice agreement ends, in order to own the car you’ll need to pay off the residual value of the car. Unlike all of your salary sacrifice payments up until this point, the last large payment (sometimes called the balloon payment) must be made with after-tax money and it includes GST.

Salary sacrificing a car is only available to employees whose employer offers that benefit.

It can also only be used for passenger vehicles with a maximum payload of 1,000 kg (although this means most cars and a wide range of utes are eligible).

In addition, salary sacrificing only offers a benefit if you earn enough to pay tax.

Tax expert Ed Beasley again: “Realistically, there are little to no benefits for employees if they are on a salary below or near the tax-free threshold.”

The tax-free threshold in Australia is currently $18,200.

My experience with car salary sacrificing

Sean Callery

Our family car is salary sacrificed through my wife’s employer and overall this works out well for us. It means the car is one expense we really don’t really need to think about as pretty much everything is covered as part of the lease. We don’t own the car currently, but that makes zero practical difference day-to-day. When the lease ends we’ll pay out the residual and plan to sell the car and upgrade it. We'll continue salary sacrificing our car for as long as it makes sense.

Sean Callery, Editor of

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Novated lease explained with Money Matchmaker

How does car salary sacrificing work for employers?

Car salary sacrificing can be a relatively simple and low-cost employee benefit. Here’s how it works:

  • You agree to make automated payroll deductions from an employee’s salary and pay the funds to the novated lease provider.
  • Most other admin is taken care of by the novated leasing company (establishing the lease, managing the contract and compliance).
  • During the salary sacrifice agreement the vehicle is owned by the lease provider.
  • The lease agreement is not tied to you as an employer. If the employee leaves, the lease leaves with them.

Benefits of car salary packaging for employers

The way vehicle salary sacrificing works for employers can bring significant benefits compared to providing a company car (or even a car allowance).

“A novated lease has no impact on the employer’s balance sheet, and it eliminates concern about the vehicle at the end of the term or when an employee ceases employment," Beasley explained.

“This is because the lease will automatically transfer to the employee.”

Recruitment and HR expert, Rebecca Houghton of BoldHR, explained that in the current climate it’s important to ensure staff benefits are relevant to the challenges employees are facing in their lives.

“When you link your benefits explicitly to the pain points that your employees are experiencing, you can make a far more compelling benefit statement from a much smaller list,” she said.

“Inflation and cost of living problems are top of mind right now. Take a good hard look at what you can do to alleviate that, starting with the difficult conversation of salary increases.”

“Salary sacrifice of vehicles can also address financial stress,” she said.

Salary sacrifice car FAQ

A salary sacrificing car agreement is quite similar to buying a car using a car loan. But because salary sacrificing your car is done through a lease company and your employer, there are major GST and income tax savings.

In addition, it can make budgeting for your car more convenient as you have a single salary sacrifice payment to cover the car itself and virtually all of your related costs (fuel/charging, comprehensive car insurance, rego and CTP insurance, servicing, replacement tyres, roadside assistance, car washes).

Yes, this is possible through what’s called a sale and lease back arrangement.

Essentially the leasing company buys your car from you (providing you with a lump sum cash injection).

Then you lease the vehicle back through your salary sacrifice payments.

When your novated lease term comes to an end, you can do one of three things:

  • Extend the lease for a new term with the same car to continue the benefits of salary sacrificing your car
  • Pay off the car’s residual payment to own the car outright
  • Pay the residual, trade-in the car and upgrade to a new model with a new salary sacrifice car agreement

Novated lease guides and resources

Find out more about the possible savings, benefits and things to watch out for, plus your range of options with a novated lease in Australia.

Written by

Shaun McGowan founder

Loans Expert

Shaun McGowan

Reviewed by

Sean Callery Editor


Sean Callery