How salary sacrificing an electric vehicle affects your gross pay, super, and tax

What is salary sacrifice for an electric vehicle?

Salary sacrifice for an electric vehicle (EV) is an arrangement where you give up part of your pre-tax salary in exchange for your employer providing an EV for personal use. Under Australian fringe benefits tax (FBT) rules, eligible electric cars are exempt from FBT, making this a popular way to reduce taxable income while driving a new car. The keyword "salary sacrifice electric vehicle" refers to this specific type of novated lease or employer-provided car benefit.

How it affects your gross pay and the Salary Index

The Salary Index measures full-time adult ordinary-time earnings before any salary sacrifice. The national line is 100, which corresponds to $108,352 per year (based on ABS Average Weekly Earnings, May 2026). If your base salary is $108,352 and you salary sacrifice $15,000 for an EV lease, your taxable income drops to $93,352, but your index remains 100. The index does not change because it is based on the ordinary-time earnings you would have received without the sacrifice. Your actual gross pay for tax purposes is lower, but the benchmark used by Salary Index stays the same.

For example, an employee earning the national average of $108,352 (index 100) who sacrifices $15,000 still has an index of 100. Their take-home pay, however, will differ because of lower tax and the lease payments. The index is a tool to compare your base earnings against the national line, not your post-sacrifice income.

Impact on superannuation

Superannuation guarantee contributions are based on ordinary-time earnings (OTE). Under Australian law, OTE includes amounts you salary sacrifice for non-super benefits, such as a car lease. So your employer must still pay the 12% super guarantee on your full pre-sacrifice salary. Using the same example: $108,352 × 12% = $13,002.24 in super contributions. Your super is unaffected by the EV salary sacrifice. This is an important point: you do not lose super by choosing this benefit.

If you also salary sacrifice into super, that is a separate arrangement and can reduce your OTE for super purposes. But for an EV lease, the sacrificed amount remains in OTE, so your super contributions stay the same.

Tax implications

Salary sacrifice reduces your taxable income, which lowers the amount of income tax you pay. Using the 2026–27 resident tax rates (excluding Medicare):

• $0 – $18,200: nil
• $18,201 – $45,000: 15%
• $45,001 – $135,000: 30%
• $135,001 – $190,000: 37%
• $190,001+: 45%

For a base salary of $108,352, the tax before Medicare is approximately $24,667. After sacrificing $15,000, taxable income becomes $93,352, and tax drops to about $19,267 – a saving of $5,400. The Medicare levy of 2% applies to both, but the levy is also lower on the reduced income. However, you must also account for the lease payments, which are deducted from your pre-tax salary. The net effect on your take-home pay depends on the lease cost and your marginal tax rate.

Example calculation

Consider a full-time employee earning $108,352 (index 100) who salary sacrifices $15,000 for an eligible EV lease. Their taxable income is $93,352. Tax (excluding Medicare) is roughly $19,267. Medicare levy (2%) is $1,867. Total tax and levy: $21,134. Without sacrifice, tax and levy would be about $27,334. The saving is $6,200. But the employee pays the lease cost from pre-tax salary, so their actual take-home after tax and lease is lower than if they had not sacrificed. The exact figure depends on the lease terms.

Considerations

• Only eligible electric vehicles qualify for the FBT exemption. This includes battery electric and hydrogen fuel cell cars, and some plug-in hybrids (subject to phase-out rules). The car must be below the luxury car threshold for fuel-efficient vehicles.
• The arrangement is typically a novated lease through your employer. You must have a salary package that allows for the sacrifice.
• Salary sacrifice can affect other entitlements such as HELP repayment thresholds, family tax benefit, and the Medicare levy surcharge. It may also reduce your gross income for loan applications.
• The pay guides and how the index works provide more detail on how earnings benchmarks are set.

State and industry context

Your base salary relative to the national line varies by state and industry. For example, the index for states shows NSW at 101.2, VIC at 98, and WA at 106.9. In industries, mining has an index of 154.7, while retail trade is 75.9. If you work in a high-index industry, your base salary is already above average, and salary sacrifice may provide greater tax savings due to a higher marginal rate. Conversely, in lower-paid industries, the benefit may be smaller.

Final thoughts

Salary sacrifice for an electric vehicle can be a tax-effective way to drive a new car, but it does not change your position on the Salary Index. The index remains based on your ordinary-time earnings before sacrifice. Your super is protected, and your tax bill may shrink. However, the decision involves trade-offs: you commit part of your salary to a lease, reducing your cash flow. Always review your total package and seek advice from a qualified accountant or tax adviser. For more on how earnings are measured, see topics.