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How salary sacrifice EV Australia affects your pay and tax
Understand how salary sacrifice EV Australia works: impact on gross pay, super, and tax. See where your pay sits on the national salary index.
Salary sacrifice for an EV reduces taxable income but not gross earnings, so your salary index remains based on your full salary before sacrifice.
What is salary sacrifice for an EV in Australia?
Salary sacrifice for an electric vehicle (EV) is an arrangement where you agree to forgo part of your pre-tax salary in exchange for your employer providing an EV and covering its running costs. This is typically done through a novated lease. The sacrificed amount is deducted from your gross pay before tax, reducing your taxable income. Because of the Australian government’s fringe benefits tax (FBT) exemption for eligible EVs, the benefit is not subject to FBT, making it even more attractive.
How salary sacrifice affects your gross pay and the salary index
The Salary Index measures your gross ordinary-time earnings against the national line of $108,352 per year (index 100). Salary sacrifice does not alter your gross earnings as reported to the Australian Bureau of Statistics; it only reduces the amount subject to tax. So your index remains based on your full salary. For example, if you earn the national average of $108,352 and sacrifice $15,000 for an EV, your taxable income becomes $93,352, but your salary index is still 100. Your take-home pay increases because you pay less tax.
Impact on superannuation
Super guarantee contributions are 12% of your ordinary time earnings (OTE) from 1 July 2026. The ATO generally treats salary sacrificed amounts (except those directed into super) as part of OTE. Therefore, your employer must pay super on your full salary before sacrifice. If you earn $108,352 and sacrifice $15,000, your super is still calculated on $108,352. Your retirement savings are not reduced. However, if you were to salary sacrifice directly into super, that amount would not be OTE and would reduce the super guarantee base.
Tax implications
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% Plus a 2% Medicare levy.
By reducing your taxable income through salary sacrifice, you save tax at your marginal rate plus Medicare. For instance, if your gross salary is $120,000 and you sacrifice $15,000, your taxable income drops to $105,000. The $15,000 that would have been taxed at 30% (plus 2% Medicare) is now not taxed, saving you $4,800. If you were in the 37% bracket, the saving would be $5,850. The FBT exemption for EVs means you also avoid FBT on the benefit, which would otherwise be a cost to your employer.
State and industry context
Your salary index varies by state and industry. For example, the ACT has an index of 109.9 (annualised $119,090), while Tasmania is 88.6 ($96,008). If you work in a high-index state like Western Australia (106.9) or a high-paying industry like mining (index 154.7), your gross earnings are already above the national line. Salary sacrifice can still optimise your tax, but the relative benefit depends on your marginal rate. See states and industries for more details.
Practical considerations
Salary sacrifice for an EV is not automatic. You need your employer’s agreement and a compliant novated lease. The FBT exemption applies to EVs with a first retail price below the luxury car tax threshold (about $89,332 in 2026–27) and that are not powered by petrol or diesel. Running costs like electricity, insurance, and maintenance are typically included in the lease. Always review the total cost compared to paying from after-tax income. A financial adviser can help model your specific situation.
How the salary index helps you compare
The how the index works page explains that the index is a simple ratio: your annual gross ordinary-time earnings divided by $108,352, multiplied by 100. Even if you salary sacrifice, your gross earnings for index purposes remain unchanged. So you can use the index to benchmark your full salary against the national average, while understanding that your effective tax rate is lower due to the sacrifice.
Conclusion
Salary sacrifice for an EV is a legitimate way to reduce your taxable income while keeping your super and gross pay benchmarks intact. It works best if you are in a stable job with a supportive employer and you drive an eligible EV. The tax savings can be significant, especially for higher earners. For more on pay structures, see pay guides and topics.
Questions people ask
Does salary sacrifice for an EV reduce my super?
No. The amount you sacrifice for an EV is generally considered ordinary time earnings (OTE) for super guarantee purposes. Your employer must still pay 12% super on your full OTE, including the sacrificed amount. Only salary sacrifice contributions directly into super are excluded from OTE.
How does salary sacrifice affect my tax bracket?
Salary sacrifice reduces your taxable income, which may lower your marginal tax rate or reduce the amount taxed at higher rates. For example, if you earn $120,000 and sacrifice $15,000, your taxable income drops to $105,000, moving you from the 37% bracket to the 30% bracket on that portion. You also save 2% Medicare on the sacrificed amount.
What is the salary index for someone who salary sacrifices an EV?
The salary index compares gross ordinary-time earnings to the national line of $108,352 (index 100). Salary sacrifice does not change your gross earnings reported to the ABS, so your index remains based on your full salary before sacrifice. For example, if you earn $108,352 and sacrifice $15,000, your index is still 100, but your taxable income is lower.