How to Compare a Car Allowance Salary Package Using Take-Home Pay

What Is a Car Allowance Salary Package?

A car allowance salary package is an arrangement where your employer pays you a separate amount – usually a fixed fortnightly or monthly sum – on top of your base salary to cover the costs of using your own vehicle for work. Unlike salary sacrificing a car, the allowance is treated as ordinary income. The Australian Taxation Office explains that an allowance is a payment based on an estimate of what you might spend, not a reimbursement of actual expenses. You must declare the allowance in your tax return and can claim deductions for the work-related car expenses you actually incur.

How a Car Allowance Affects Your Take-Home Pay

Because a car allowance is added to your taxable income, it pushes you into a higher tax bracket if your total income crosses a threshold. For 2026–27, the resident tax rates are:

• Up to $18,200: nil
• $18,201–$45,000: 15c for each $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c for each $1 over $45,000
• $135,001–$190,000: $31,020 plus 37c for each $1 over $135,000
• Over $190,000: $51,370 plus 45c for each $1 over $190,000

You also pay the Medicare levy of 2% on your taxable income, unless you earn below the single threshold of $28,011 (reduced rate up to $35,013).

Example: Comparing Two Job Offers

Suppose you have two offers:

• Offer A: Base salary $70,000, no car allowance.
• Offer B: Base salary $65,000 plus a $5,000 car allowance (total $70,000).

At first glance, both pay $70,000. But with Offer B, the $5,000 allowance is fully taxable. Your taxable income is the same $70,000, so your tax and Medicare levy are identical. However, with Offer A you might be able to salary package a car through a novated lease and reduce your taxable income, as shown in the ATO’s example. The key difference is that a car allowance gives you cash now but no FBT advantages, while salary packaging can lower your tax bill if structured correctly.

Salary Packaging vs Car Allowance

Salary packaging (also called salary sacrificing) lets you swap part of your salary for benefits like a car, super contributions, or other items. The ATO notes that salary sacrificed super contributions are not fringe benefits, but most other benefits attract FBT for the employer. A car allowance, on the other hand, is simply extra income. You can use the Take-home pay calculator to see how each option affects your net pay.

What About Deductions?

If you receive a car allowance, you can claim a deduction for the work-related car expenses you actually incur – for example, fuel, maintenance, and depreciation. The ATO warns that there is no automatic deduction for receiving an allowance; you must keep records. If you use the cents-per-kilometre method, the rate is set by the ATO each year. Claiming deductions reduces your taxable income, which can offset some of the tax on the allowance.

How to Compare Job Offers Using Take-Home Pay

To compare offers, focus on the amount that reaches your bank account after tax and the Medicare levy. Follow these steps:

1. Add your base salary and any allowances (car, travel, etc.) to get your total taxable income.
2. Estimate your tax using the 2026–27 rates. Remember the Low Income Tax Offset (LITO) if your income is below $66,667.
3. Subtract 2% for the Medicare levy (unless you qualify for a reduction).
4. Add any salary sacrificed amounts that reduce taxable income (e.g., super contributions).
5. Subtract any employee contributions if you salary package a car.

Use the Tax and Medicare guide for detailed calculations. The Benchmarks page shows the national minimum wage ($26.44 per hour, $1,004.90 per week) and average full-time earnings ($2,083.70 per week) to help you gauge where an offer sits.

Superannuation and Car Allowance

Your employer must pay super guarantee (12% from 1 July 2026) on your ordinary time earnings, which includes your base salary but not a car allowance unless it is part of your ordinary time earnings. Check your award or agreement. If you salary sacrifice super, those contributions are treated as employer contributions and are not subject to FBT. The Super page explains how salary sacrifice affects your retirement savings.

Medicare Levy Thresholds

The latest published single-person Medicare thresholds are $28,011 (lower) and $35,013 (upper). If your taxable income is below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, the levy is 10c per dollar over the lower threshold. Above $35,013, you pay the full 2%. A car allowance can push you over these thresholds, increasing your levy.

Final Thoughts

When comparing job offers, don’t just look at the headline salary. A car allowance salary package may give you more cash flow, but it also increases your tax and Medicare levy. Salary packaging a car can reduce your taxable income, but it involves FBT and employer contributions. Use the Salary packaging guide to weigh the options. Always calculate your estimated take-home pay before deciding.

Disclaimer: This is a resident estimate only. Excludes HELP/HECS, the Medicare levy surcharge, salary sacrifice, and payroll tax-table rounding. Not an assessment.