One of the most cost-effective things you can salary sacrifice is your car, which in Australia is known as a novated lease.

Scroll on to understand what is involved with salary sacrificing your car through a novated lease.

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What does it mean to salary sacrifice your car?

With a salary sacrifice car arrangement, you can pay for your brand new set of wheels directly from your salary through a novated lease. Your employer handles the payments on your behalf using your pre-tax salary, meaning you get to keep more of your hard-earned cash. 

By entering into a salary sacrifice car lease, you choose to ‘sacrifice’ a chunk of your full paycheck to cover the car and its running costs. 

Technically you don’t own the car – but you do get all the perks of having it. And if you’re really feeling it by the end of the lease, you can pay its residual payment (balloon payment) and make it yours for good. 

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How salary sacrificing your car works

Salary sacrificing your car can potentially lower your tax bill by several thousand dollars (and sometimes more) because it utilises your pre-tax income to pay for your car and its running costs.

But a novated lease offers additional benefits. With a novated lease, you can save up to $6,334 in GST on the cost of your car, save 10% on the car’s running costs, and you can access wholesale pricing to get a new car for cheaper.

That said, you can put a used car or even your existing car on a novated lease too.

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Who can salary sacrifice a car?

As long as you’re employed by a company or organisation that provides novated leasing as a benefit, you’re all set to salary sacrifice your next car. If you’ve just started a new job, you might have to wait until the end of your probation to be eligible for a novated lease.  

You’ll also need to pass the credit check with the finance company – don’t worry, they’ll give your financial history a once-over.

If your employer doesn’t already have a novated leasing provider, don’t sweat it. It’s easy to get them set up with us. We work with all kinds of organisations, from small businesses to ASX-listed companies and government bodies. We’re especially passionate about helping SMEs thrive by optimising their employee benefits.

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How do I get started with salary sacrificing my car?

As we mentioned in the previous chapter, you need to be employed and paid via PAYG, and your employer also needs to offer novated leasing.

If your employer doesn’t offer novated leasing, we’re happy to talk to them about it and guide them through the process of getting set up.

See how much you’re set to save with a salary sacrifice car arrangement by using our novated lease calculator. There are thousands in savings waiting for you each year, and we’re excited to share the good news! This calculator is just an estimate, so you’ll need to reach out to a provider for a personalised quote.

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Steps to salary sacrifice your car

If you decide to go ahead with a salary sacrifice car arrangement, here’s how to set it up:

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1. Find a quality novated lease provider 

Once you’ve done your research on novated leasing, chosen your set of wheels and picked a provider you like (we’re not biased or anything, but we highly recommend us), you can get a quote over the phone – it should only take a few minutes. 

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2. Get a quote for your dream car 

You receive your quote via email and while you’re mulling it over, your provider (again, we strongly suggest using us) can get you pre-approved for finance. There’s still no obligation at this point, but it can speed things up.

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3. Submit your paperwork 

If you decide to go ahead, you and your employer sign a simple agreement that says that your employer will make payments from your salary on your behalf.

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4. Drive away and start your lease

You get final approval on finance and get your car and welcome kit.

Then you don’t have to do much – your employer continues to make payments for you from your pre-tax salary and if you’ve chosen to roll your running costs (fuel/electricity, rego, roadside assistance, insurance, servicing and tyres) into your lease, these will all be covered too.

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Common questions about how to salary sacrifice a car:

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What happens when the salary sacrifice car agreement ends?

You can salary sacrifice a car for anywhere between six months and five years. When the lease is up, you’ve got three options:

• Pay the residual value and own the car outright.
• Extend the lease and keep driving the same vehicle.
• Upgrade to a new car by trading in your current ride. Use its sale value to cover the residual, and keep any profit—tax-free (that’s right, we said tax-free). This is the option most people go for.

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What other costs can I cover through my salary sacrifice car lease?

All running costs! That’s right – you can cover annual registration, insurance, fuel, servicing and repairs through a novated lease. 

Want to see how much you could save by salary sacrificing your car? Just plug in your details into our super simple calculator.

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What kind of car can I salary sacrifice?

You can salary sacrifice pretty much any new or used passenger vehicle, including most dual-cab utes, as long as the payload is under 1,000kg. 

Whether you buy your car from a dealer or a private seller, you can still salary sacrifice it. Just note that the GST discount usually only kicks in when you buy from a GST-registered dealer – even if it’s a used car.

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How does salary sacrifice work for a current car?

Yes, you can salary sacrifice a car you already own. Here’s how it works: the finance company will buy the car from you and lease it back. Once that’s done, everything else remains the same – your lease payments and running costs will be covered using your pre-tax salary.

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How do I handle insurance and maintenance for a salary sacrificed car?

You’ll have to organise it, but you’re able to cover these costs using your novated lease budget meaning you can save on GST that would normally apply. 

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What is a good length of time to salary sacrifice a car? 

There is no right answer but most people tend to go for a 2-5 year lease. From a financial perspective, the longer the lease the more potential savings, however, a longer lease can come with additional risk. It really depends on your personal circumstances. 

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How does salary sacrifice work for an EV? 

Tax savings get even juicier when you opt for an EV. Electric and plug-in hybrid vehicles are exempt from fringe benefits tax (FBT) when paid through a novated lease, meaning you can salary sacrifice 100% of your car lease and running costs from your pre-tax salary.

Just keep in mind, the ATO says the vehicle must fall below the luxury car tax threshold ($91,387 for FY24/25) to qualify.

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What are some caveats of salary sacrificing a car? 

For novated leases, here’s what you need to keep in mind:

• Your government subsidy may drop due to its impact on your adjusted taxable income.
• Borrowing power for other assets, like investment properties, could take a hit – just like any other lease or loan.
• Breaking the lease early comes with a price, so be sure to check the specifics with your novated lease provider.
• If you switch jobs, your new employer has to agree to transfer the lease – they’re not obligated to, though!
• Losing your job or income due to illness or injury can be tricky, so talk to your provider about the potential consequences.
• In rare cases, your employer might reduce their super guarantee contributions based on the lower pre-tax income after the novated lease deduction. It’s worth double-checking with your payroll team if that’s the case.