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Novated lease vs salary sacrifice: which suits your state and industry?
Compare novated lease vs salary sacrifice with Australian state and industry differences. See how your income, location, and sector affect the net benefit.
The value of a novated lease versus salary sacrifice depends on your income, state, and industry; the national full-time adult ordinary-time earnings index is 100.
Understanding the difference between novated lease and salary sacrifice
When you hear 'novated lease vs salary sacrifice', it helps to know that a novated lease is one specific way to salary sacrifice a car. Salary sacrifice is an arrangement where you give up part of your pre-tax salary in exchange for a benefit provided by your employer. The benefit can be a car (via novated lease), additional super contributions, a laptop, or even childcare. The key difference is that a novated lease involves a three-way contract between you, your employer, and a financier. Your employer makes the lease payments from your pre-tax salary, and you pay the remaining running costs (fuel, insurance, maintenance) also from pre-tax salary. Other salary sacrifice benefits are simpler: your employer pays for the benefit directly and reduces your taxable income by that amount.
How the tax treatment works
The Australian Tax Office (ATO) treats most salary sacrifice benefits as fringe benefits. For cars, the ATO uses a statutory formula to calculate the taxable value. The current statutory rates are 20% of the car's cost for the first year, reducing slightly each year. This means the amount you sacrifice is not simply the lease payment; it also includes Fringe Benefits Tax (FBT) that your employer may pass on. Some employers absorb the FBT, making the novated lease more attractive. For other salary sacrifice items like super, there is no FBT, but there are caps on concessional contributions. The super guarantee is 12% from 1 July 2026, and the maximum contribution base is $270,830. Salary sacrifice into super can be a tax-effective way to boost retirement savings, especially if you are in a high tax bracket.
State differences and the Salary Index
Your state of residence affects your average earnings, which in turn influences the potential tax saving from salary sacrifice. The Salary Index uses the ABS Average Weekly Earnings to set a national line of 100, equal to $108,352 per year. State indices range from 88.6 in Tasmania ($96,008 annualised) to 109.9 in the ACT ($119,090). If you live in a higher-index state, your income is likely above the national average, meaning you pay a higher marginal tax rate. For example, someone in the ACT earning $119,090 is in the 37% tax bracket (plus 2% Medicare levy). Sacrificing $10,000 into a novated lease could save about $3,900 in tax and Medicare. In Tasmania, the average earner at $96,008 is in the 30% bracket, so the same sacrifice saves about $3,200. The difference is real, but your personal income matters more than the state average.
Industry differences and the industries index
Your industry is a strong predictor of your pay level. The industries page shows that mining has an index of 154.7, meaning the average full-time worker earns about $167,600 per year. At that income, the marginal tax rate is 37% or 45%, making a novated lease very tax-effective. In contrast, retail trade has an index of 75.9 ($82,200 annualised), and accommodation and food services is 72.5 ($78,500). Workers in these industries are more likely to be in the 30% bracket or lower. For them, salary sacrifice for super might be a better choice because it avoids FBT and builds long-term wealth. Also, some industries have enterprise agreements that offer salary sacrifice packages. For instance, many public sector employers in education and training (index 105.5) offer novated leases as a standard benefit, while smaller retail businesses may not.
How to compare using the index
To decide between a novated lease and another salary sacrifice option, start by finding your gross annual earnings and compare them to the national line. If your income is above $108,352 (index >100), you are in a higher tax bracket and a novated lease could save you thousands. If your income is below that, the savings are smaller and you should consider the fees and FBT implications. The pay guides on this site can help you understand award rates in your industry, which set the minimum you must be paid before any sacrifice. Remember, salary sacrifice cannot reduce your pay below the relevant award or minimum wage. For example, the national minimum wage from 1 July 2026 is $26.44 per hour, or $1,004.90 per week (index 48.2). You must always receive at least that amount in cash.
Super and tax considerations
Salary sacrifice into super is often simpler than a novated lease. The super guarantee is 12% from 1 July 2026, and you can sacrifice additional amounts up to the concessional cap ($27,500 in 2026–27). The tax on super contributions is only 15%, compared to your marginal rate. For someone earning $120,000 (index 110.8), the tax saving on $10,000 sacrificed to super is about $2,200 (difference between 37% and 15%). A novated lease might save more if you need a car, but it involves FBT and ongoing costs. The ATO's rules mean that the taxable value of a car is calculated using a statutory formula, which can be less generous for expensive cars. Always compare the net benefit after all costs.
Conclusion
The choice between a novated lease and salary sacrifice depends on your income, state, industry, and personal needs. Use the Salary Index, states, and industries pages to see where you sit relative to the national average. If you are in a high-index state or industry, a novated lease can be a powerful tax tool. If your income is lower, salary sacrifice into super or other benefits may be more appropriate. Talk to your employer or a financial adviser to model your specific situation.
Questions people ask
Is a novated lease always better than salary sacrifice?
No. A novated lease is a type of salary sacrifice specifically for a car. Whether it is better depends on your income, how much you drive, and your employer's policy. Salary sacrifice can also cover super contributions, laptops, or other benefits. For high-income earners in states like ACT (index 109.9) or industries like mining (index 154.7), a novated lease often saves more tax because the car's running costs are paid pre-tax. But if you earn near the national minimum wage (index 48.2), the tax saving is small and a novated lease may not be worth the fees.
How does my state affect the benefit of a novated lease vs salary sacrifice?
State differences in average earnings influence the marginal tax rate you pay. For example, if you live in Western Australia (index 106.9) or the ACT (index 109.9), your income is likely higher than the national average, so you fall into a higher tax bracket. This makes salary sacrifice—including a novated lease—more valuable because each dollar sacrificed saves 30%, 37%, or 45% tax plus 2% Medicare levy. In Tasmania (index 88.6) or South Australia (index 94.6), average earnings are lower, so the tax saving is typically smaller. However, your personal income matters more than the state average.
Does industry matter for choosing between a novated lease and salary sacrifice?
Yes. Your industry often determines your pay level and the types of benefits your employer offers. In high-paying industries like mining (index 154.7) or professional services (index 114.7), employees are more likely to be in the top tax brackets, making a novated lease an effective way to reduce taxable income. In lower-paying industries like retail (index 75.9) or accommodation and food (index 72.5), the tax benefit is smaller, and salary sacrifice for super may be a better long-term option. Also, some employers in certain industries offer salary sacrifice packages that include a novated lease as a standard benefit.