Salary sacrifice EV: how to compare job offers with an electric vehicle benefit

What is salary sacrifice EV?

Salary sacrifice is an arrangement where you agree to forgo part of your pre-tax salary in exchange for a benefit provided by your employer. When that benefit is an electric vehicle (EV), it’s called salary sacrifice EV. The sacrificed amount reduces your taxable income, so you pay less income tax and Medicare levy, but you receive the use of the car instead of cash.

For example, if your gross annual salary is $100,000 and you sacrifice $15,000 for an EV, your taxable income becomes $85,000. Using the 2026–27 resident tax rates (nil to $18,200; 15% to $45,000; 30% to $135,000), your tax on $85,000 would be $5,092 plus 30% of $40,000 = $12,000, total $17,092 plus 2% Medicare levy ($1,700) = $18,792. Without the sacrifice, tax on $100,000 would be $5,092 + 30% of $55,000 = $16,500, total $21,592 plus $2,000 Medicare = $23,592. You save $4,800 in tax, but you have $15,000 less cash in hand.

How does salary sacrifice EV affect your salary index?

The Salary Index compares your gross ordinary-time earnings to the national line of $108,352 (index 100). Your gross salary before sacrifice determines your index. If you earn $100,000, your index is 92.3. The sacrifice itself does not change your index because the index is based on gross pay, not net. However, when comparing job offers, you should consider the total value of the package, including the EV benefit.

For instance, a job in Western Australia (index 106.9) might offer a higher gross salary than one in Tasmania (index 88.6), but if the Tasmanian job includes a generous salary sacrifice EV, the net benefit could be comparable. Use the index to see where the cash salary sits relative to the national average, then add the value of the EV.

Tax and FBT considerations for EVs

From 1 July 2022, the Australian Government introduced an FBT exemption for eligible EVs. This includes battery electric vehicles, hydrogen fuel cell vehicles, and plug-in hybrid electric vehicles (the latter until 1 April 2025, though this may be extended). The car must have a first retail price below the luxury car tax threshold for fuel-efficient vehicles ($89,332 for 2026–27). If the EV qualifies, no FBT is payable on its private use, making salary sacrifice much more attractive.

Without the exemption, FBT would be calculated on the car's taxable value (usually 20% of the cost) and you would be liable for tax on that benefit. The exemption means you only pay income tax on the sacrificed amount, not additional FBT.

However, the super guarantee (12% from 1 July 2026) is calculated on your salary after sacrifice. So if you sacrifice $15,000, your employer's super contribution drops from $12,000 to $10,200 (on $85,000). You may want to negotiate salary sacrifice for super separately to maintain your retirement savings.

Comparing offers with and without salary sacrifice EV

When reading a job ad, look for the total remuneration package. Some ads quote a base salary plus super, others include the value of benefits. To compare fairly:

1. Calculate your net cash pay after tax and Medicare levy, assuming you take the salary sacrifice option. Use the resident tax rates and a flat 2% Medicare levy (ignore HELP, surcharges, etc.).
2. Estimate the value of the EV benefit – typically the cost of leasing or running the car. The ATO uses a statutory formula (20% of the car's cost) or operating cost method. For an EV exempt from FBT, the benefit is effectively the lease cost you avoid.
3. Compare the total package to a job without salary sacrifice. For example, Job A offers $110,000 cash (index 101.5) with no benefits. Job B offers $100,000 cash plus an EV worth $15,000 (taxable income $85,000). Your net cash from Job A is about $82,000 (after tax). From Job B, net cash is about $66,200 plus the car. Which is better depends on whether you need a car and the car's value to you.

Use pay guides and industries to see typical pay levels. For instance, the Professional, scientific and technical industry has an index of 114.7, so a $110,000 salary there is below average, while Retail trade at 75.9 means $110,000 is well above.

Practical example: comparing two offers

Suppose you have two offers in New South Wales (index 101.2):

• Offer 1: $115,000 gross salary, no salary sacrifice (index 106.1). Net cash after tax and Medicare: approximately $84,000.
• Offer 2: $100,000 gross salary plus salary sacrifice EV worth $15,000 (taxable income $85,000). Net cash: approximately $66,200, plus the EV. The EV benefit (if FBT exempt) is worth the lease cost you save – say $5,000 per year in running costs and depreciation. Total package value ~$71,200 cash equivalent.

Offer 1 gives you more cash, but you have to buy or lease a car yourself. Offer 2 gives you a car and less cash. Your choice depends on your personal situation.

Key takeaways

• Salary sacrifice EV reduces your taxable income and tax, but also reduces your super and cash flow.
• The FBT exemption for eligible EVs makes salary sacrifice more valuable.
• Compare job offers by looking at total remuneration, not just cash salary.
• Use the Salary Index to see where a gross salary sits against the national line.
• Always check the latest ATO rules and seek professional advice.

FAQs

Does salary sacrifice EV reduce my super?

Yes, because the super guarantee is calculated on your salary after sacrifice. You may want to arrange additional salary sacrifice for super to compensate.

Is salary sacrifice EV worth it compared to a higher cash salary?

It depends on your tax bracket and the value of the EV. Use the salary index to compare gross figures and consider your net benefit.

How does the FBT exemption for EVs affect salary sacrifice?

It eliminates the FBT liability, making the EV benefit tax-free for the private use portion, which increases the net advantage.