How a salary sacrifice car lease affects your take-home pay

How a salary sacrifice car lease changes your take-home pay

If you are considering a salary sacrifice car lease, you are essentially asking your employer to take part of your pre-tax salary and use it to provide you with a car and cover its running costs. This arrangement, also known as salary packaging, can reduce your taxable income and therefore the amount of income tax and Medicare levy you pay. But the net effect on your bank account depends on the details.

The ATO’s worked example

The Australian Taxation Office provides a clear example for the 2025–26 year. Sam earns $65,000 a year and wants to salary sacrifice a car worth $35,000 with annual running expenses of $11,500. Under the arrangement, Sam’s employer pays those expenses. The ATO calculates two scenarios: one without employee contributions and one with employee contributions of $7,000.

• Without employee contributions: Sam’s taxable income drops to $47,647. After income tax ($5,082.10) and Medicare ($952.94), and after paying the sacrificed amount ($17,353), Sam’s net disposable income is $41,611.96. That is actually less than the $41,912 Sam would have if they did not package the car and paid the $11,500 expenses from after-tax income.
• With employee contributions: Sam’s taxable income is $60,855. After tax ($9,044.50), Medicare ($1,217.10), and the $7,000 employee contribution, net disposable income is $43,593.40 – a gain of about $1,681 over not packaging.

This shows that making an employee contribution can make the arrangement worthwhile. The employee contribution reduces the fringe benefits tax (FBT) your employer must pay, and in return you keep more of your income.

How it compares to benchmarks

To put that in perspective, the national minimum wage from 1 July 2026 is $26.44 an hour or $1,004.90 a week, which works out to about $52,255 a year. A full-time adult earning ordinary time earnings averages $2,083.70 a week or about $108,352 a year (ABS Average Weekly Earnings, May 2026). Sam’s $65,000 salary sits between these two. After salary sacrificing with employee contributions, Sam’s net disposable income of $43,593 is about 83% of the minimum wage annual figure – but remember that Sam also has the use of a car worth $35,000 plus all running costs paid.

Tax and Medicare levy considerations

Your salary sacrifice reduces your taxable income, which may lower your income tax bracket. For 2026–27, the tax rates are:

• $0–$18,200: Nil
• $18,201–$45,000: 15c per $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c per $1 over $45,000
• and so on.

You also pay the Medicare levy of 2% of your taxable income, unless your income is below the single-person thresholds of $28,011 (no levy) or $35,013 (shaded rate). Full-time salaries almost always pay the full 2%.

Because salary sacrifice reduces your taxable income, you may pay less Medicare levy. However, the car benefit is reported as a reportable fringe benefit on your income statement. This can affect your eligibility for the Medicare levy surcharge, certain tax offsets, and government benefits like Family Tax Benefit or child support.

What about super?

Your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary, not the reduced salary. So your super contributions are protected. You can also choose to salary sacrifice additional super contributions, which are taxed at 15% in the fund – but those are separate from a car lease.

Is a salary sacrifice car lease right for you?

It depends on your income, the car’s value, and whether your employer offers the arrangement. The ATO example shows that without employee contributions, you can end up worse off. With employee contributions, you can come out ahead. You should also consider:

• The FBT your employer pays (which may be passed on to you)
• The impact on your Take-home pay and any government benefits
• Whether you would be better off using your after-tax income to buy or lease a car yourself

For more details, see our guides on Salary packaging and Tax and Medicare. You can also use our Clearance tool to estimate your net income under different scenarios.

Final note

This article is a general guide. The figures are based on the ATO and Moneysmart examples for illustration. Your actual outcome will depend on your specific salary, the car’s cost, your employer’s FBT liability, and your personal circumstances. Always consult a qualified tax professional before entering a salary sacrifice arrangement.