Novated Lease – How It Works in Australia?
If you’ve been wondering how salary packaging a car works, you’re not alone. Thousands of Australians take advantage of novated leases each year to reduce tax, simplify car ownership and get more value from their income.
This guide explains what salary sacrificing a car means, how a novated lease works, who can benefit, and what to consider before you commit.
What is Salary Packaging Car (Novated Lease)?
Salary packaging a car (also known as a novated lease) lets you pay for your vehicle and its running costs from your pre-tax income. This lowers your taxable income and can save you thousands each year.
A typical package can include:
- Lease payments for your car.
- Fuel, servicing and tyres.
- Registration and insurance.
- Roadside assistance.
In simple terms: instead of paying for your car with money that’s already been taxed, you use your pre-tax salary — maximising your take-home savings.
How Does a Novated Lease Work?
A novated lease is a three-way agreement between:
- You (the employee) – who drives the car.
- Your employer – who deducts the lease payments from your salary.
- A finance provider – who supplies the car finance.
Your employer makes the repayments directly from your pre-tax salary. This means:
- Less income tax payable.
- GST savings on the car purchase price.
- Predictable monthly expenses, with no surprise bills.
Want to see the full process? Read our step-by-step guide to applying for a novated lease.
Benefits of Salary Packaging a Car
1. Significant Tax Savings
By reducing your taxable income and avoiding GST on the purchase price, you can save thousands compared to a standard car loan.
2. Fleet Discounts
Access pricing and servicing discounts normally reserved for large companies.
3. Bundled Running Costs
Fuel, insurance, servicing and rego can be rolled into one predictable payment.
4. Flexibility
At the end of the lease you can:
- Upgrade to a new vehicle.
- Pay the residual and keep your car.
- Hand it back and walk away.
Things to Consider Before Salary Sacrificing a Car
Salary packaging a car isn’t for everyone. Here’s what to weigh up:
- Impact on take-home pay: Your net salary will be lower, even though you’re saving overall.
- Job stability: Novated leases work best if you have steady employment. What happens if I change jobs?
- Superannuation: Contributions may be affected since your pre-tax income is reduced.
- Driving habits: If you drive very little, the tax savings may be smaller.
Salary Packaging vs Buying a Car
Let’s compare a $50,000 car over 4 years:
| Option | Upfront Costs | Running Costs | Tax Position | Overall |
| Buy with Loan | Pay GST + repayments from after-tax salary | Separate, unpredictable | No tax benefits | Higher overall cost |
| Salary Package (Novated Lease) | No GST on purchase | Bundled into one payment | Paid from pre-tax income (lowers taxable income) | Savings of $5,000–$8,000+ |
For many employees, salary packaging offers a clear financial edge compared to traditional car ownership.
More than just a way to finance a car.
It is a simple and the most cost effective way to car ownership.
FAQs About Salary Packaging a Car
Can anyone salary sacrifice a car in Australia?
Not everyone. You need an employer who offers salary packaging arrangements. Check if you’re eligible for a novated lease.
How do I salary package a car?
You choose a vehicle, your employer agrees to the arrangement, and the finance provider sets up the lease.
Can I salary package a used car?
Yes, provided the car meets age and value requirements. See our guide on novated leasing a used car.
Is salary packaging better than a car loan?
Often, yes. Unlike car loans, novated leases reduce taxable income and include running costs.
What happens if I leave my job?
Your lease can usually be transferred to your new employer.
Is salary packaging a car a good idea?
Yes, for many employees, salary packaging a car (via a novated lease) is a smart way to reduce taxable income and make vehicle costs more predictable. It’s especially worthwhile if you drive regularly, want to bundle all expenses into one payment, or plan to take advantage of EV Fringe Benefits Tax (FBT) exemptions. That said, it works best for people with stable employment and steady income, so it’s important to check if it fits your financial situation.
How much can I salary sacrifice for a car?
There isn’t a strict cap on how much you can salary sacrifice for a car — it depends on the cost of the vehicle, your lease arrangement, and what your employer allows. Typically, you can package most of your vehicle expenses, including lease payments, fuel, insurance, rego and maintenance. The ATO sets residual value requirements based on lease length, and your provider can show you exactly how much of your salary can be packaged without breaching compliance.
Does salary packaging actually save you money?
In most cases, yes. Salary packaging lets you use pre-tax income to pay for your car and running costs, which reduces your taxable income and the GST you pay. Over a typical 3–5 year term, this can mean savings of $5,000–$8,000 or more compared to a standard car loan or cash purchase. The exact savings depend on your income, the type of car, and how the package is structured, which is why getting a personalised calculation is the best way to confirm your benefit.
Get Your Personalised Salary Packaging Analysis
The best way to know if salary packaging a car is right for you is to see the numbers.
Get your free salary packaging quote today – no obligation, just a clear breakdown of how much you could save.