How a novated lease salary sacrifice affects your take-home pay
The pay varies depending on your salary, the car's cost, and whether you make employee contributions to reduce FBT.
How a novated lease salary sacrifice works
A novated lease salary sacrifice is a specific type of salary packaging where you use part of your pre-tax income to pay for a car and its running costs. The Australian Taxation Office explains that salary sacrificing means you and your employer agree for you to receive less income before tax, and in return your employer pays for certain benefits of similar value for you . This reduces your taxable income, meaning you may pay less tax.
With a novated lease, the benefit is a car (a fringe benefit). Your employer will have to pay fringe benefits tax (FBT) on the value of the car benefit unless you make employee contributions. The ATO provides an example: for a car with a taxable value of $17,353, if you make no employee contributions, your employer pays FBT on that amount. But if you contribute $7,000 from after-tax pay, the taxable value drops to $4,145, and your employer's FBT is much lower .
What happens to your taxable income
When you salary sacrifice for a novated lease, your taxable income falls by the amount sacrificed. For example, if you earn $65,000 and sacrifice $17,353 for a car, your taxable income becomes $47,647. Using 2025–26 tax rates (which are similar to 2026–27), your income tax drops from $10,288 to $5,082, and your Medicare levy falls from $1,300 to $953. However, you no longer have to pay car expenses out of pocket—those are covered by the sacrifice. The ATO table shows that with employee contributions of $7,000, your net disposable income actually increases compared to not packaging .
Impact on your take-home pay
Your take-home pay is the amount that reaches your bank account after income tax and the Medicare levy. With a novated lease salary sacrifice, your employer deducts the sacrificed amount before calculating tax. So your regular pay will be lower, but you save on tax. The net effect depends on your marginal tax rate. Moneysmart notes that salary packaging is usually more effective for people on middle to high incomes because their marginal tax rate is higher .
For the 2026–27 income year, the tax rates are: nil up to $18,200; 15c per $1 over $18,200 up to $45,000; 30c per $1 over $45,000 up to $135,000; 37c per $1 over $135,000 up to $190,000; and 45c per $1 over $190,000. The Medicare levy is 2% of taxable income. The low-income thresholds for Medicare are $28,011 and $35,013 for singles—if your taxable income is below $28,011 you pay no Medicare levy; between $28,011 and $35,013 you pay a reduced rate. But full-time workers on the minimum wage ($26.44 per hour, $1,004.90 per week) earn about $52,255 annually, so they pay the full 2%.
What you need to consider
Before entering a novated lease salary sacrifice, check with your employer whether they offer it and what benefits are included. You must arrange the sacrifice before you earn the income—you cannot go back and sacrifice salary you have already received. Also, the sacrificed amount reduces your super guarantee base? No—your employer must still pay the 12% super guarantee on your original salary, not the reduced amount. However, salary sacrificed super contributions are separate and count towards the concessional cap of $32,500 per year.
Another key point: from 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT, but cars are not work-related items in that sense—they remain fringe benefits. Always consider the impact on government benefits, child support, and the Medicare levy surcharge if you are single and earn over a certain threshold.
How to estimate your take-home pay
You can use our Take-home pay guide to see how different salary sacrifice amounts affect your net income. Remember that a novated lease salary sacrifice reduces your taxable income, so you pay less income tax and Medicare levy. But you also have less cash in hand because the sacrificed amount goes to the car lease. The ATO example shows that with smart employee contributions, you can end up with more net disposable income than if you paid for the car out of after-tax dollars.
For more details on tax rates and thresholds, see Tax and Medicare. And if you want to compare your situation to benchmarks, check our Benchmarks page for the national minimum wage and average earnings.
Questions
What is a novated lease salary sacrifice?
It's an arrangement where you and your employer agree to reduce your pre-tax salary in exchange for your employer paying for a car lease and associated costs. This reduces your taxable income, but your employer may need to pay fringe benefits tax (FBT) on the benefit.
How does a novated lease affect my take-home pay?
Your take-home pay decreases by the salary sacrificed amount, but you save on income tax and Medicare levy because your taxable income is lower. You also avoid paying for car expenses out of after-tax income. The net effect depends on your marginal tax rate and any employee contributions.
What are the Medicare levy implications?
The Medicare levy is 2% of your taxable income. A novated lease reduces your taxable income, so you pay less Medicare levy. However, if your taxable income falls below the single thresholds ($28,011 or $35,013), you may be exempt or pay a reduced rate. But full-time workers typically pay the full 2%.