Salary sacrifice car guide: How to drive your car for less

Drive your car for less

You may have heard from colleagues or friends that they ‘salary sacrifice’ their car to save on tax. This is sometimes also called car salary packaging.

Read our guide to understand what’s involved and how salary sacrificing your car through a novated lease can save you money.

How does salary sacrifice work for a car?

Some employers offer salary sacrificing as an employee benefit. Depending on the employer, you may be able to salary sacrifice the likes of super contributions, electronic devices, mortgage payments and, of course, your car.
A salary sacrifice car benefit means you can lease a car and pay for it directly from your salary with a tax saving.
You can salary sacrifice your choice of new or used vehicle for a term of between six months and five years.
Your car salary packaging payments are deducted by your employer each time you get paid.
The payment will be made up of a combination of pre-tax and post-tax contributions. However, if you salary sacrifice an eligible EV, the entire payment can be made using pre-tax money as these leases are exempt from fringe benefits tax.
Your regular salary sacrifice car payments will also cover the vehicle running cost. The budget for this is calculated based on your estimated number of kilometres driven per year.
You are free to choose your own provider for the likes of insurance and servicing, and simply claim back any cost you incur from your car-running budget.
The lease is managed by a novated lease provider (e.g. Novated Lease Australia) who arranges the finance and takes care of the ongoing admin.
To be approved, you’ll need to submit a finance application through the novated lease provider and there will be a credit check, just like applying for a car loan.

How to salary sacrifice a car in 5 steps

If you decide to go ahead with a salary sacrifice car arrangement, here’s what’s involved:

1. Check that your employer allows salary sacrificing.

Even if they don’t currently offer car salary packaging, many employers will facilitate it for staff who are interested as there is no direct cost to establishing it as a company benefit.

2. Find a novated lease provider.

Your employer may already have a preferred salary sacrifice car provider, but if possible it’s a good idea to get quotes from a few providers based on the car you have in mind. Costs and service levels can vary significantly.

3. Submit an application.

The novated lease provider will facilitate your lease application to the finance company. You may need to provide payslips and other documents to support the application.

4. Order your vehicle.

With the salary sacrifice car lease approved, you can order the vehicle you want through the dealer. Car dealers are very accustomed to vehicles being purchased through a novated lease.

5. Take delivery of your car and start your lease.

Once your car is delivered to you, your employer will begin deducting the salary sacrifice car payments from your regular salary each time you get paid.

How does car salary packaging affect my take-home pay?

If you’re making salary sacrifice car payments, your take home pay will be less than it otherwise would be. But crucially, you won’t need to put any of the salary that goes into your bank account towards paying for your car.

Instead, with car salary packaging, you will have a pre-loaded fuel card to pay for petrol and you’ll be able to use funds from your novated lease budget to pay for the likes of your rego, insurance and servicing as needed.

Overall this set-up can save drivers a lot of money. You can estimate your overall savings using our novated lease calculator.

Tax implications of a salary sacrifice car arrangement

Here are the ways salary sacrificing your car may reduce your tax bill:

Salary sacrificing your car though a novated lease reduces your taxable income because the payments are made from your salary before tax is deducted. It means a potential saving on packaged vehicle costs equal to your marginal tax rate.
Your choice of vehicle will be purchased on your behalf with a GST discount (a saving of up to $6,353 in FY 2026/27).
Any car running expenses included in your novated lease and paid for with pre-tax salary will also be GST-free.
Because it’s an employee benefit, novated leases may be subject to fringe benefits tax. This is as tax payable by the employer, but there is generally no actual cost, as the lease can be set up to include a portion of after-tax payments to offset the FBT.

If you salary sacrifice an eligible electric car it will be entirely exempt from FBT. This significantly increases the tax savings as 100% of the car costs (including running expenses) can be covered with your pre-tax salary.

We always recommend getting advice from a qualified tax expert if you need guidance on what a salary sacrifice car agreement could mean in your specific situation.

Salary sacrifice car vs car loan vs paying cash

Car salary packaging using a novated lease is a popular alternative to buying a car with a loan or paying for it outright with cash. Here’s a quick overview of the differences:

Salary sacrifice car

You pay for a car that you can use for 100% personal use through your pre-tax salary. Regular salary sacrifice car payments are deducted from your income each time you’re paid to cover the cost of leasing the car plus virtually all running costs. You don’t own the car until the end of the lease and the residual payment has been made.

Car loan

You buy a car which you own from the start using finance provided by a bank or other lender. You make regular repayments to repay the loan plus interest during the loan term. You are responsible for making these repayments (your employer is not involved) and there is no tax saving. The loan is usually secured by the loan meaning the lender can reclaim it if you can’t make the repayments. You will need to cover all running costs separately.

Paying with cash

You pay for the car in full up-front using your own money. You own the car with no finance on it, but there is no tax saving and you will need to cover all running costs separately.

Example salary sacrifice car cost comparison

Because of how a novated lease works, car salary packaging can work out to be considerably cheaper than the other options. Here’s an example, based on a Tesla Model Y RWD that’s eligible for a fringe benefits tax exemption.

	EV Novated lease	Buy outright	Car loan
Vehicle price (Tesla Model Y RWD)	$64,014	$64,014	$64,014
GST saving on vehicle	-$5,518	$0	$0
Weekly cost	$216 (includes $84 in running costs)	$84 (running costs only)	$383 (loan repayment & $84 in running costs)
Weekly income tax saving	$102	$0	$0
Weekly GST saving	$32	$0	$0
Tax saving over 5 years (GST & income tax)	$34,788	$0	$0
Total cost of car & running costs over 5 years (including residual value)	$72,661	$85,854	$99,850
Cost difference		+$13,193	+$26,919
Calculation is based on a driver in NSW with an annual gross salary of $100,000 driving 15,000km per year. Running costs include: electricity, comprehensive insurance, registration and CPT, servicing and tyres. Pricing is accurate as of March 2026. For this example, the car loan interest rate is assumed to be 8.00% p.a. with no loan fees. This is an example for illustrative purposes only based on the assumptions described. Your cost and savings may be different depending on your situation.

Is salary sacrificing a car worth it?

Salary sacrificing your car can be a great way to save money. This is because of the unique tax benefits available through a novated lease.

But we always encourage our customers to consider their own situation and whether a salary sacrifice car lease will be right for them.

Here’s a summary of the main pros and cons to think about:

Pros of salary sacrificing your car

There are significant income tax and GST savings available. The potential income tax savings are highest if you lease an eligible EV.
You may be able to afford a larger or better model of car than would otherwise be achievable if you were paying through other methods.
You can cover all of your car expenses with a single salary sacrifice car payment that automatically comes out of your pay check.
Your novated lease provider may be able to negotiate a further discount on the cost of your car as they order hundreds of vehicles each month.

Cons of salary sacrificing your car

The salary sacrifice car agreement is linked to your employer, but is your responsibility ultimately. This means if you move jobs and your new employer does not offer novated leasing, you will still be responsible for the lease payments, minus the tax savings.
You don’t own the vehicle during the novated lease. You’ll need to make the residual payments if you want to own the car outright at the end of the lease. You can’t salary sacrifice the residual amount – you’ll need to use your own money (i.e. after tax funds).

Salary sacrifice car benefits for employers

For employers, allowing your employees salary sacrifice their car can offer a number of benefits, including:

A salary sacrifice car benefit can be a great way to attract and retain staff as it offers employees a way to save money.
It offers an alternative to purchasing or leasing company cars, or offering a car allowance to employees who use their car for work.
There is generally no direct cost involved in offering car salary packaging to staff and little admin involved. The novated lease provider does a lot of the set-up work and will provide support to you as required.
Not all employers offer this benefit, meaning it can give you a point of difference in a competitive market when trying to attract talent.

What happens when the salary sacrifice car agreement ends?

You can salary sacrifice a car for a period of between six months and five years. When the lease term ends, you will have three main options:

Pay out the residual value of the car so you own it outright.
Extend the agreement for a new lease term with the same vehicle.
Upgrade your car and start a new novated lease. To do this you trade in your current car and use the sale value to pay out its residual value (you get to keep any profit, tax-free). We find most people choose this option.

YOUR QUESTIONS

Answered

Learn more about how a novated lease works from start to finish.

Who owns the car?

Just like with a regular car loan, you get full use of the car - you drive it, fuel it, service it, and look after it as if it were your own. There are no restrictions on whether you use it for work or personal purposes. The main difference is that the lease payments are made through salary sacrifice, which may offer tax benefits compared to a standard car loan.

While the financier is the legal owner during the lease term (again, similar to a regular car loan), the vehicle is registered in your name and you have the same flexibility and responsibility as if you owned the vehicle. At the end of the lease, you can pay the residual (similar to a balloon payment) and take ownership, refinance, or upgrade to a new car.

Is there a minimum salary to get a novated lease?

Novated leasing approval is dependent on your capacity as a borrower much like traditional finance. This means you need to illustrate your ability to meet regular repayments over the term of the lease. For example, as it is entirely dependent on your personal living situation, expenses and dependents, you could gain approval for a $30,000 vehicle on a yearly salary of $45,000.

How long will my novated lease be?

The term of the lease agreement is flexible, to suit the employee.

Generally, terms of one to five years are available under a novated lease. You can compare your payments based on different lease terms using our novated lease calculator.

The shorter the term of the salary packaging agreement, the higher the residual.

What's the minimum and maximum value of car I can get?

The amount you can borrow for a vehicle will vary depending on the lender. In general, the minimum novated lease amount is between $5,000 and $10,000, while higher amounts are subject entirely to the repayment capacity of the applicant.

Novated lease agreements may exceed $100,000 but very rarely exceed $150,000.

Get expert answers to more of the common questions in our novated lease explained guide.

Can I buy a used car with a novated lease?

Yes, right now, people more than ever are getting used cars through a novated lease instead of waiting for a new car deal. Buying a used car from a dealership will still see you save the GST on the purchase price.