Novated Lease Salary Packaging and Your Salary Index: What It Means for Your Pay

Novated lease salary packaging and where your pay sits on the index

Novated lease salary packaging is an arrangement where your employer uses your pre-tax salary to pay for a car lease and its running costs. It is a form of salary sacrifice that can reduce your taxable income and increase your take-home pay. But how does it affect where your pay sits on the Australian salary index? The short answer is: it does not change your index number at all.

The salary index, as used by Salary Index, compares your gross ordinary-time earnings to the national line. That line is set at 100, which in May 2026 equalled $108,352 a year (based on ABS Average Weekly Earnings). Your index is your annual gross pay divided by that figure, multiplied by 100. For instance, if you earn $80,000 a year, your index is about 73.8. If you earn $120,000, your index is about 110.7. These figures are based on your salary before any salary packaging or sacrifice.

What novated lease salary packaging does

When you enter a novated lease, your employer deducts the lease payments and running costs from your gross salary before tax is calculated. This lowers your taxable income, so you pay less income tax and Medicare levy. Your take-home pay may increase, but your gross salary as reported to the ATO and used for the salary index does not change. The index is a measure of your earning power before any packaging, not your net income.

For example, imagine you work in health care and social assistance, an industry with an index of 97.8 (slightly below the national line). You earn $90,000 gross, giving you an index of about 83.1. You decide to novate a car worth $15,000 a year in lease and running costs. Your taxable income drops to $75,000, but your gross salary remains $90,000. Your salary index stays at 83.1. The packaging simply changes how much tax you pay, not where you sit on the index.

Why the index matters for packaging decisions

Understanding your salary index can help you decide whether novated lease salary packaging is worthwhile. The index shows how your gross pay compares to the national average and to other states and industries. For instance, if you work in retail trade (index 75.9) or accommodation and food services (72.5), your gross pay is well below the national line. Packaging a car may reduce your tax bill, but your index remains low because the gross figure is unchanged. Conversely, if you work in mining (index 154.7) or professional services (114.7), your gross pay is above average, and packaging can still lower your tax while keeping your high index.

State differences also matter. If you live in the ACT (index 109.9) or Western Australia (106.9), your gross earnings tend to be higher than the national line. A novated lease in those states reduces taxable income but does not alter your state index. In Tasmania (88.6) or South Australia (94.6), the same principle applies.

How awards and super interact

Your modern award or enterprise agreement may set a minimum wage that is higher than the national minimum wage. For example, from 1 July 2026 the national minimum wage is $26.44 per hour (index 48.2), but many awards pay more. Novated lease salary packaging does not affect your award rate; it is a voluntary arrangement on top of your base pay. However, your super guarantee is calculated on your ordinary time earnings (OTE). The ATO generally includes salary sacrificed amounts in OTE for super purposes, but novated lease payments may reduce your OTE depending on how your employer defines it. The super guarantee rate is 12% from 1 July 2026, up to a maximum contribution base of $270,830. If your OTE drops because of packaging, your employer’s super contributions may also drop. Check with your payroll or a tax adviser.

Take-home pay estimates

The salary index does not directly show take-home pay, but you can estimate it using the tax rates for 2026–27. For a resident with the tax-free threshold, no HELP debt, and a flat 2% Medicare levy, the tax on $80,000 gross is roughly $15,467 (including Medicare), leaving $64,533. If you package $15,000 through a novated lease, your taxable income becomes $65,000, tax about $11,717, take-home $53,283 plus the car benefit. Your index remains 73.8. Remember, these estimates ignore HELP repayments, Medicare levy reduction, and the Medicare levy surcharge.

Where to find more

For more on how the index is calculated, see how the index works. To compare pay across states, visit states. Industry benchmarks are at industries. If you want to explore other salary packaging topics, check topics.

The bottom line

Novated lease salary packaging is a useful way to reduce tax, but it does not move your salary index. Your index is a snapshot of your gross ordinary-time earnings relative to the national line. Whether you package a car or not, your index stays the same. Use the index to understand where your gross pay stands, and use packaging to manage your net income.