How salary sacrifice cars affect your take-home pay

Salary sacrifice cars and your take-home pay

When you see a job ad that says "$80,000 package including car", it's easy to confuse the total package with the cash you'll actually receive in your bank account. Salary sacrifice cars can reduce your taxable income, but the amount that lands in your account depends on how the arrangement is structured.

This guide explains how salary sacrifice cars work, what happens to your take-home pay, and why the figure on your payslip may be lower than you expect.

What is salary sacrifice for a car?

Salary sacrifice (also called salary packaging) is an agreement between you and your employer. You give up part of your pre-tax salary, and in return your employer provides a car and pays its running costs. The Australian Taxation Office explains that the benefit replaces what you would otherwise receive as salary.

For example, if your salary is $65,000 and you sacrifice $17,353 to get a car worth $35,000 with $11,500 in running costs, your taxable income drops to $47,647. You pay less income tax and Medicare levy, but you no longer have to pay the car expenses yourself.

How the numbers work: the ATO example

The Australian Taxation Office provides a detailed example for Sam, who earns $65,000 a year and considers salary sacrificing a $35,000 car with $11,500 in running costs. Using the 2025–26 tax rates (the latest published example), the results are:

• Without salary sacrifice: Taxable income $65,000, income tax $10,288, Medicare levy $1,300, car expenses $11,500 out of after-tax income. Net disposable income: $41,912.
• With salary sacrifice and no employee contribution: Taxable income $47,647, income tax $5,082, Medicare levy $953, no car expenses. Net disposable income: $41,612. The reportable fringe benefits amount is $13,208.
• With salary sacrifice and an employee contribution of $7,000: Taxable income $60,855, income tax $9,045, Medicare levy $1,217, employee contribution $7,000. Net disposable income: $43,593.

Notice that the best outcome for Sam is the third scenario, where he makes an employee contribution equal to the car's taxable value. This eliminates the reportable fringe benefits amount and increases his net disposable income.

The role of fringe benefits tax (FBT)

Most salary sacrifice cars are fringe benefits, so your employer must pay FBT on the car's taxable value. The taxable value is calculated using a statutory formula (20% of the car's cost, regardless of kilometres travelled). Your employer may ask you to make an employee contribution from your after-tax salary to reduce their FBT liability. That contribution also reduces the reportable fringe benefits amount on your income statement.

From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT. But for cars, the rules remain largely unchanged.

Electric cars: a special exemption

There is currently an FBT exemption for eligible electric cars and associated expenses. If you salary sacrifice an electric car that meets the conditions, no FBT applies. This can make the arrangement more tax-effective. Check the ATO website for the latest requirements.

How salary sacrifice cars affect your tax and Medicare levy

Your taxable income is your salary minus the amount sacrificed for the car (and any other benefits). You pay income tax at the 2026–27 rates:

• Up to $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
• $135,001–$190,000: $31,020 plus 37c per $1 over $135,000
• Over $190,000: $51,370 plus 45c per $1 over $190,000

Plus the Medicare levy of 2% of your taxable income. The latest single-person Medicare thresholds are $28,011 and $35,013. If your taxable income is below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, the levy is phased in at 10c per dollar over the lower threshold. Above $35,013, you pay the full 2%.

Salary sacrifice cars reduce your taxable income, so you may pay less Medicare levy or even fall below the threshold.

What about super?

Your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary before any sacrifice. The car sacrifice does not reduce your super. If you also salary sacrifice extra super contributions, those are taxed at 15% in your fund, not at your marginal rate.

Common mistakes: gross salary vs package vs take-home

• Gross salary is the cash amount before tax. If you earn $80,000 gross, that's what your employer pays you in cash.
• Package includes the cash salary plus the value of benefits like a car. A "$100,000 package" might mean $85,000 cash plus $15,000 car benefit. Your taxable income is only $85,000.
• Take-home pay is what reaches your bank account after income tax, Medicare levy, and any employee contributions. It does not include the value of the car or super.

If you see a job ad that says "$80,000 plus super and car", the cash salary is $80,000, and the car is an additional benefit. Your take-home will be based on $80,000, not $80,000 plus the car's value.

Should you salary sacrifice a car?

It depends on your income, the car's cost, and whether your employer offers the arrangement. Use the Take-home pay calculator to estimate your net pay with and without salary sacrifice. Also consider the impact on government benefits, child support, and the Medicare levy surcharge. The Salary packaging guide has more details.

For the latest benchmarks, see Benchmarks for minimum wage and average earnings figures.

Summary

Salary sacrifice cars can reduce your taxable income and increase your net disposable income, especially if you make an employee contribution to avoid FBT. But the amount that lands in your bank account will be lower than your gross salary because you've swapped cash for a car benefit. Always compare the net disposable income, not just the headline salary figure.