How to salary package a car: state and industry differences in Australia
Learn how to salary package a car in Australia, with state and industry differences explained using the Salary Index. Tax, FBT, and super considerations included.
Salary packaging a car can reduce your taxable income, but its value relative to the national line depends on your state and industry benchmarks.
How to salary package a car: state and industry differences
Salary packaging a car is a common way to reduce your tax bill by using pre-tax income to pay for a vehicle. But how much you benefit depends on where you live and what industry you work in. This guide explains the mechanics, using the Salary Index to show how your earnings compare to the national line, and how state and industry benchmarks affect the deal.
What is salary packaging a car?
When you salary package a car, you and your employer agree to divert part of your gross salary to cover car-related costs – lease payments, fuel, insurance, registration, and maintenance. This reduces your taxable income, so you pay less income tax. The car is typically provided under a novated lease, which is a three-way agreement between you, your employer, and a financier.
However, the Australian Tax Office (ATO) treats the private use of a car provided by an employer as a fringe benefit. Your employer must pay Fringe Benefits Tax (FBT) on that benefit, unless an exemption applies. The most common method to calculate FBT is the statutory formula: 20% of the car's value is deemed to be for private use, regardless of actual kilometres. Your employer can pass the FBT cost back to you through a salary sacrifice arrangement, which reduces the net benefit.
How the Salary Index helps
The Salary Index compares your gross annual earnings to the national line of $108,352 (index 100). If your salary is above that line, you are in a higher tax bracket (30%, 37%, or 45% plus Medicare levy). Salary packaging a car becomes more valuable because every dollar you sacrifice saves you tax at your marginal rate. If your salary is below the national line, the tax saving is smaller, and the FBT cost may eat into it.
For example, a professional in the Professional, scientific and technical services industry (index 114.7) earning around $124,000 annually is in the 37% tax bracket. Packaging a car worth $30,000 could save about $4,440 in tax per year (assuming full FBT liability is passed back). In contrast, a retail worker (index 75.9) earning $82,000 is in the 30% bracket, saving about $3,600 – still worthwhile, but less.
State differences
Your state's average earnings also matter. The states page shows indices from Tasmania (88.6) to the ACT (109.9). If you live in a high-index state like the ACT or Western Australia (106.9), your typical salary is higher, so packaging a car yields greater tax savings. In lower-index states like Tasmania or South Australia (94.6), the benefit is smaller, but still possible if your personal salary is above the national line.
Consider a teacher in the ACT (index 109.9 for the territory, but Education and training industry index 105.5). A teacher earning $115,000 is in the 37% bracket. Packaging a car could save around $4,255 in tax annually. The same teacher in Tasmania (state index 88.6) might earn $96,000, dropping to the 30% bracket, saving about $3,600. The difference is real, but both benefit.
Industry differences
Industry benchmarks show even wider gaps. Mining workers (index 154.7) often earn well above the national line, making car packaging very attractive. A miner earning $167,000 is in the 37% bracket (or even 45% if over $190,000). Packaging a car could save over $6,000 in tax. In contrast, Accommodation and food services (index 72.5) workers earn around $78,500, in the 30% bracket, saving about $3,450. The lower the industry index, the less tax you save, but packaging still reduces your taxable income.
Tax and super considerations
When you salary package a car, your employer still pays the super guarantee (12% from 1 July 2026) on your reduced salary. That means your super contributions shrink slightly. For example, if you sacrifice $10,000 for a car, your super loses $1,200 in contributions (assuming no salary sacrifice into super). You need to weigh the immediate tax saving against long-term super growth.
Also, the ATO's luxury car tax threshold (not in the reference) may affect high-value cars. And from 1 July 2025, electric cars under the luxury car tax threshold are FBT-exempt, which can make packaging an EV very attractive – but that's a separate topic.
How to start salary packaging a car
First, check if your employer offers salary packaging. Many large employers in mining, education, and health care do. If you are on a modern award, your award may allow it, but some awards restrict salary packaging to certain items. The pay guides on this site can help you understand your award conditions.
Next, get a quote from a novated lease provider. They will calculate the lease cost, FBT, and your net saving. Use the Salary Index to see where your salary sits relative to the national line – this helps you estimate the tax bracket you are in.
Finally, consider your personal situation. If you drive very little, the statutory formula (20% private use) may overstate your FBT, but you cannot use the operating cost method unless you keep a logbook. For most people, the statutory formula is simpler.
Example: packaging a car in different states and industries
Let's compare two workers:
Anna works in mining in Western Australia. Her salary is $170,000 (above the national line). She packages a $40,000 car. Her marginal tax rate is 37% (plus 2% Medicare). The FBT on the car is about $4,400 (20% of $40,000 x 2.0802 FBT gross-up rate x 47% FBT rate). Her employer passes this back, so her net saving is roughly ($170,000 - $40,000) taxed at 37% vs $170,000 taxed at 37% minus FBT cost. In practice, she saves around $6,000 in tax.
Ben works in retail in Tasmania. His salary is $80,000 (below the national line). He packages the same $40,000 car. His marginal rate is 30% (plus 2% Medicare). The FBT cost is the same $4,400. His tax saving is about $3,200, but after the FBT pass-back, his net saving is smaller – maybe $1,000. For Ben, packaging may still be worth it if he needs a car, but the benefit is less clear.
Final thoughts
Salary packaging a car is a legitimate way to reduce tax, but it's not a magic bullet. Use the Salary Index to understand your position, and always run the numbers with a professional advisor.
Questions people ask
What is salary packaging a car?
Salary packaging a car means you arrange with your employer to deduct car expenses (lease, fuel, maintenance, insurance) from your pre-tax salary. This reduces your taxable income, so you pay less income tax. The car is usually provided under a novated lease, and Fringe Benefits Tax (FBT) may apply. The net benefit depends on your marginal tax rate and the FBT liability.
How do state and industry differences affect salary packaging a car?
Your state and industry influence your typical earnings, which in turn affect the tax savings from packaging. For example, if you work in mining (index 154.7) in Western Australia (index 106.9), your higher salary means you are likely in a higher tax bracket, so packaging a car saves more tax. In contrast, a retail worker (index 75.9) in Tasmania (index 88.6) earns less, so the tax saving is smaller. The Salary Index helps compare your earnings to the national line.
Is salary packaging a car worth it for someone on the national minimum wage?
The national minimum wage (index 48.2) is well below the national line. At that income, your marginal tax rate is low (likely 15% or 30% after the tax-free threshold). The FBT cost may outweigh the tax saving. Also, many awards or enterprise agreements may not allow salary packaging for minimum-wage employees. It is generally more beneficial for those earning above the national line, especially in higher-tax brackets.