Buying a car with your monthly salary is tough. Saving up feels impossible.
Car loans feel like a trap, either. Interest rates keep rising. And after tax, your take-home pay doesn’t go far.
If you want a car without wrecking your savings or locking you into a high-interest car loan, a salary sacrifice car lease might just be for you!
It’s a smart way to drive now and pay less tax along the way. At Vehicle Solutions, we’ve seen a spike in novated lease enquiries across Adelaide and SA since 2024, especially from employees chasing the 100% FBT exemption for electric vehicles. ATO and EV Council data backs it up: since mid-2023, more than 40% of EV buyers opted for salary sacrifice or novated leasing for the savings alone. Compare that with 2022, where the number used to be just 2%, you can see a pattern.
In this guide, we’ll break down exactly how it works, who it suits, what you’ll need, and how to make it worth your while.
How Does a Salary Sacrifice Car Lease Work in Australia?
A salary sacrifice arrangement lets you use your pre-tax salary to pay for eligible expenses. It reduces your taxable income, so you pay less tax. Common items include super contributions, laptops, and yes, car leases.
When you use this strategy for a car, it’s called a salary sacrifice car lease or novated lease. Your employer deducts lease payments and all of the vehicle running costs excluding GST from your salary before tax is applied. This can unlock thousands in tax savings, especially if you choose an electric vehicle, which can be 100% FBT-exempt under current Australian legislation.
In other words, when you sign up for a salary sacrifice car lease, you agree to give up a portion of your pre-tax salary in exchange for a car
That portion goes toward lease payments, fuel, registration, insurance, even tyres and servicing.
- The car is packaged as part of your salary.
- You pay less income tax because your taxable income is lower.
- You drive a new or used car under a novated lease agreement (your employer signs this with a lease provider).
It’s not like a loan.
You don’t own the car outright, but you get to use it like it’s yours, with less hassle and fewer upfront costs.
An Example of How a Salary Sacrifice Car Lease Works
Emma, 32, works in Adelaide as a marketing coordinator.
She earns $85,000 per year and wants a fuel-efficient hatchback, but doesn’t want to pay up front or get a traditional car loan.
Instead, she signs a 5-year novated lease through her employer with a trusted novated lease provider.
Her weekly lease payments come out of her pre-tax salary, covering lease, charge(fuel), rego, insurance, tyres, and servicing.
She saves around $7,500/year in taxes and avoids dipping into her savings.
Benefits of a Salary Sacrifice Car Lease
A novated lease isn’t only convenient, it’s financially strategic. Here’s exactly what you get:
Serious Tax Savings on Running Costs
Fuel, servicing, tyres, registration, comprehensive insurance, and more. All of these are paid using your pre-tax income.
That means you could be saving 28–47% depending on your marginal tax rate. According to the ATO, the average full-time worker in SA earns around $1,975/week as of 2024. That’s a decent chunk of change going back into your pocket when you salary package your car.
Lower Income Tax and More Take-Home Pay
By reducing your taxable income, you pay less tax every year.
No Upfront Cost, Deposit, or Stress
Forget needing $10K upfront or scraping together a balloon payment. With a novated lease, you can drive off without touching your savings. Everything from the purchase price to stamp duty is rolled into the lease agreement.
All-In-One Deduction
One predictable deduction from your pre-tax salary, typically every fortnight or month, covers everything:
- Tyres
- Rego
- Roadside assist
- Scheduled servicing
- Fuel card
- Insurance
No unplanned surprises or last-minute mechanic bills.
New or Used Car? Your Choice!
Do you prefer a 2025 hybrid SUV or a reliable 3-year-old hatchback? Both are eligible. As long as the car is from a dealer and under lease eligibility limits (usually under 10 years old at lease end), you’re good to go.
Electric Vehicles Are 100% FBT Exempt
Do you love driving electric vehicles? You’ll love this.
Per the ATO’s 2023 update, EVs under the Luxury Car Tax threshold (currently $91,387 for 2025–26) are 100% exempt from Fringe Benefits Tax when salary sacrificed.
That’s:
- $0 in FBT
- No GST
- Thousands saved every year in income tax.
- No emissions.
So if you’re eyeing a Tesla Model 3, Polestar 2, or MG ZS EV, your lease becomes a full-blown tax-free commute.
If you lease a $60,000 EV on a 3-year novated lease and your effective tax rate is 39%, your total tax savings (including FBT exemption and income tax reduction) could exceed $12,000 over the lease term.
Who Is Eligible for a Salary Sacrifice Car Lease?
If you’re a salaried employee in Australia, there’s a good chance you qualify.
This includes government, education, healthcare, or corporate workers, anyone paid a consistent salary by an employer who offers salary packaging.
- You must be employed full-time or part-time.
- Your employer must agree to a novated lease setup.
- Your salary must be high enough to benefit from reducing your pre-tax income.
Are you retired or not actively earning a salary? There’s a solution for you.
Read More: Novated Leasing for Retirees: A Guide to What’s Possible & What’s Not
Steps to Set Up a Salary Sacrifice Car Lease
Here’s how to get started:
- Check if your employer offers salary packaging. Not all companies do. HR or payroll will know. It takes an email.
- Choose a novated lease provider. Tip: Vehicle Solutions has 40+ years of local experience and supports 400+ employers across Australia.
- Pick your car. New or used, it’s up to you. Use tools like Motorbuys to compare deals.
- Submit paperwork. You’ll need:
- Proof of income
- Car details or quote
- Driver’s licence
- Sign the lease agreement. It’s a three-way agreement between you, your employer, and the lease provider.
- Drive away. The lease provider pays the dealership. You start making lease payments from your pre-tax salary.
How Long Does It Take?
Most setups take 2-7 business days, depending on your employer’s approval process.
And if your documents are ready and the car is available, it’s often quicker.
Tips from People Who’ve Done It
1. Flip the car, pocket the difference
“I’d sell the car in year 3, pay out the residual, and keep the balance. Then start again. I always drove a near-new car and made a little on the side.”
2. All-inclusive worked out cheaper
“My $13K Fiat Panda cost me $200/fortnight. That included fuel, tyres, servicing, rego, insurance, and more. I paid under $3K to buy it out after 5 years. If I’d gone the car loan route, it would’ve cost me over $27K in running costs alone.”
3. Not for short-termers
“Great if you stay in the job long enough. But if you’re planning to leave, maybe skip it.”
Can I Use a Salary Sacrifice Car Lease for an Electric Vehicle?
Yes. Many EVs under $89,332 (2025–26 LCT threshold) are FBT-exempt when leased under a novated lease.
This means 100% tax-free benefits for you if the car meets the eligibility.
Can I Salary Sacrifice a Second-hand Car?
Yes, if it’s from a licensed dealer and is less than 10 years old at the end of the lease term. You can’t lease a car you already own.
What Happens if the Employee Leaves During the Lease?
You’ll be responsible for the lease. You can:
- Take the lease with you to your new employer
- Pay the remainder yourself
- Refinance or sell the car
Talk to a novated lease provider like Vehicle Solutions about options before signing.
Is a Salary Sacrifice Car Lease Worth It?
Yes, it is if:
- You want less tax and predictable costs;
- You prefer driving a newer car;
- Your employer supports salary packaging.
It’s worth exploring, especially now, with rising car prices and more EV tax exemptions in play.
Start Exploring Your Salary Sacrifice Options Now!
At Vehicle Solutions Australia, we’ve helped thousands of Australians drive smarter through novated leasing.
With over 40 years of local finance and automotive experience, we support 280+ employers across Australia.
We also partner with Motorbuys to help you find the best car deals upfront, with no hidden fees.
If you want to start or have questions, call our team on 08 8338 4427 for a free consultation.
