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car salary sacrifice

Salary Sacrifice for Vehicles: A Detailed Guide to Smart Car Buying

car salary sacrifice

When you’re considering a vehicle through a salary sacrifice scheme, there are several factors to consider to ensure you make a decision that best fits your needs and maximises the benefits of the scheme. Below, we outline key factors and provide insights into how car salary sacrifice can be a smart choice for acquiring your next vehicle.


Choosing a Vehicle Through Salary Packaging


Factors to Consider When Choosing a Vehicle for Salary Sacrifice

Type of Vehicle and Usage

Opting for electric vehicles (EVs) can be a savvy choice due to minimal benefit in kind tax, with potential savings starting at around 20% and reaching up to 58% in some cases. The Australian Government’s Electric Car Discount Bill, which removes import tariffs and Fringe Benefits Tax (FBT) on eligible zero or low-emissions vehicles, makes EVs more attractive for salary packaging.

Total Cost of Ownership

Consider the total cost of ownership, which includes not only the monthly salary sacrifice amount but also insurance costs, maintenance expenses, and the environmental impact. Most salary sacrifice vehicles come with a fixed fee for insurance, and maintenance plans usually cover all regular services, ensuring the vehicle is kept in top condition.

Financial Implications

The extent of savings through salary sacrifice depends on factors like annual income, tax bracket, and the specific vehicle chosen. This scheme can provide a cost-effective option for both employees and employers, with reductions in tax and national insurance payments due to decreased income.

Vehicle Selection and Supply

The popularity of novated lease vehicles reflects consumer choice and new vehicle trends. However, supply can be a challenge for popular models. It’s important to be flexible and consider multiple options if your first choice is not readily available.

Benefits of Salary Sacrifice Car Schemes

Salary sacrifice for vehicles allows you to access a brand-new vehicle through your employer, with expenses deducted from your gross salary. This arrangement can lead to significant savings over time, effectively reducing your taxable income and putting more money in your pocket.

Lease Terms and Conditions

You can salary sacrifice any car (new or used) for a duration between one and five years, with control over which car running costs to include. This flexibility allows you to adjust your budget if your driving habits change.

GST and Fleet Pricing Advantages

A novated lease allows you to skip paying GST on your salary sacrificed car, offering a handy 10% discount on the car itself and parts and labour costs. Additionally, a good novated lease provider can get you access to wholesale (fleet) pricing, further saving on the car you want.


Cost Comparisons: Lease vs. Salary Sacrifice

When exploring car salary sacrifice and lease options, it’s crucial to understand the financial implications of each choice. Here, we delve into the cost differences between opting for a novated lease versus a traditional car loan, particularly focusing on electric vehicles (EVs) and non-EVs. This comparison aims to highlight the potential savings and benefits associated with each option, enabling you to make an informed decision that aligns with your financial and personal needs.


Detailed Breakdown of Costs: Leasing vs. Buying

Analysis reveals significant savings when choosing a novated lease over a car loan. For electric vehicles, a novated lease can offer a 24.6% saving compared to a traditional car loan. Specifically, for a Tesla Model 3 RWD, the total cost over five years with a car loan amounts to $96,182, whereas the novated lease option reduces this to $72,491, saving $23,691. This saving is attributed to the up-front GST saving of $5,736 and lower weekly costs, including running costs, when opting for a novated lease.

For non-electric vehicles, such as the Toyota Corolla ZR Hatch, the saving is 6.1%. The total cost over five years with a car loan is $73,481, compared to $68,984 with a novated lease, saving $4,497. The novated lease again benefits from an up-front GST saving, this time amounting to $3,397, and lower weekly costs.

A novated lease encompasses not only the car but all vehicle running costs – fuel, registration, roadside assistance, insurance, servicing – in one easy payment deducted from your gross (pre-tax) income. This arrangement effectively lowers your taxable income, leading to less tax paid and potentially thousands of dollars in savings annually. Additionally, a novated lease allows you to avoid paying GST on the car and all running costs, equating to a 10% saving, and access wholesale (fleet) pricing for further discounts.

Comparatively, buying a car outright, while seemingly straightforward, lacks the unique tax advantages offered by a novated lease. For instance, a novated lease on a new Tesla Model 3 RWD, including running costs, would result in a total cost of $76,504 over five years compared to $86,902 if paying outright with cash. This demonstrates a clear financial benefit, with a novated lease providing a cost-effective pathway to vehicle ownership, especially when considering the tax discounts on both the car and running costs.

Whether you opt for an electric vehicle or a non-EV, a novated lease presents a financially advantageous option over traditional car loans. By incorporating vehicle and running costs into one pre-tax payment and leveraging GST savings and fleet pricing, a novated lease can significantly reduce the overall cost of vehicle ownership.


Financial Advantages of Salary Sacrifice for Vehicles


Tax Benefits and Savings | Salary Sacrifice Over A Car Loan

Salary sacrificing for a vehicle means you use part of your pre-tax salary to pay for personal expenses, such as a car, through your employer. This arrangement reduces your taxable income, leading to significant tax savings. By opting for a salary sacrifice, the deductions come from your pre-tax salary, effectively lowering the amount of income tax you owe. The main tax advantage of this scheme is the payment of expenses through pre-tax income, which can significantly reduce your tax liability, especially if you’re in a higher tax bracket.

An added benefit is that the GST on the car is claimed by the employer, and this saving is directly passed onto you as the employee. This means you effectively avoid paying the 10% GST on the purchase price and ongoing expenses like fuel and servicing, which can add up to substantial savings over time. Furthermore, since 2022, salary sacrificing an eligible electric vehicle brings additional tax benefits due to a fringe benefits tax exemption, enhancing the financial attractiveness of opting for electric cars.

For electric vehicles, the benefit in kind tax is considerably lower, capped at 2% until 2025, compared to potentially up to 40% for combustion-engined vehicles. This lower rate encourages the use of electric vehicles and offers further tax savings. The combination of reduced taxable income, savings on GST, and lower benefit in kind tax rates can lead to substantial financial advantages, making salary sacrifice an attractive option for acquiring a new vehicle.



Throughout this exploration of salary sacrifice for vehicles, we’ve unearthed the multifaceted benefits this scheme presents, especially for those looking to smartly acquire their next vehicle while maximising financial advantages. Key points such as the significant tax benefits, cost efficiencies with electric vehicles (EVs), and the arising environmental considerations demonstrate the holistic advantage of opting for a salary sacrifice. By aligning vehicle selection with personal and financial goals, individuals can leverage this scheme to not only reduce taxable income and save on GST but also to make an environmentally positive choice.

Furthermore, the detailed comparison between leasing and salary sacrifice, alongside real-world examples, underscores the tangible savings and conveniences available through this arrangement. It’s evident that, irrespective of one’s tax bracket or choice of vehicle, salary sacrifice remains an attractive option for acquiring a new vehicle. As the automotive market continues to evolve, with a growing emphasis on sustainability, the compelling financial and environmental case for salary sacrifice schemes becomes even more pronounced, suggesting a strategic avenue for both employees and employers moving forward.

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