Educational
Salary Sacrificing an EV in Australia: How It Works
Salary sacrificing an EV has become one of the most talked-about ways to access an electric vehicle in Australia. Thanks to the fringe benefits tax exemption on eligible EVs, the numbers can be very attractive.
But it is not the right option for everyone, and there are some important details to understand before you sign up. Here is the overview.
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What Is Salary Sacrifice?
Salary sacrifice (also called salary packaging) is an arrangement where your employer agrees to pay for certain expenses out of your pre-tax salary. Instead of receiving your full salary and then paying for things out of your after-tax income, the cost comes off the top before tax is calculated.
For a vehicle, this typically works through a novated lease. Your employer takes out a lease on the vehicle on your behalf, and the lease payments plus running costs are deducted from your pre-tax salary.
Not sure whether salary sacrifice is the best fit? Compare it properly before you commit.
We help you weigh novated lease against consumer and business finance so you see the practical differences, not just the brochure.
Why Is Salary Sacrificing An EV So Attractive?
The FBT exemption is the key ingredient. Normally, when an employer provides a car for personal use, FBT applies, which adds to the cost. With eligible EVs, that FBT is removed, making the arrangement significantly cheaper.
The result is that you effectively pay for the vehicle using pre-tax dollars, with no FBT penalty. Depending on your tax bracket and the vehicle's value, this can save you thousands of dollars per year compared to buying the same vehicle with after-tax income.
Novated not for you? There is usually a straight consumer or business path worth comparing.
Same EV — different structure. We help you see which path fits if packaging is not available.
Honest if novated is not the answer.
How Does The Process Work?
The typical process looks like this:
You choose the EV you want. Check that it meets the FBT exemption criteria (zero or low emissions, below the luxury car tax threshold for fuel-efficient vehicles).
You speak to your employer. They need to agree to offer salary sacrifice as part of your employment package. Not all employers offer this, so check first.
Your employer engages a salary packaging provider. The provider sets up the novated lease, arranges the finance, and manages the ongoing payments.
Lease payments and running costs are deducted from your pre-tax salary each pay cycle. Running costs can include registration, insurance, maintenance, tyres, and charging.
At the end of the lease term, you can pay the residual to own the vehicle, refinance, start a new lease on a different vehicle, or hand the vehicle back.
What Are The Costs?
The monthly cost depends on the vehicle's purchase price, the lease term (usually 3 to 5 years), the residual value set at the end of the lease, your running cost estimates, and your marginal tax rate (the higher your tax bracket, the bigger the benefit).
Your salary packaging provider will model this for you and show you the effective cost compared to buying the vehicle outright with after-tax income. The difference can be substantial.
Is It Right For Everyone?
No. There are some situations where salary sacrifice may not be the best option.
If your employer does not offer salary packaging, it is not available to you. Some employers, particularly smaller businesses, do not have the infrastructure or willingness to set it up.
If you are on a lower income, the tax savings are smaller, and the administrative costs of the arrangement may eat into the benefit.
If you prefer to own the vehicle from day one, a novated lease is a lease, not a purchase. You do not own the vehicle until the residual is paid at the end. If ownership matters to you, a chattel mortgage or consumer loan might be more suitable.
If you plan to leave your employer, the novated lease transfers with you (it is between you, the finance company, and your employer), but it can get complicated. Check the terms before committing.
What If Salary Sacrifice Is Not For Me?
If a novated lease does not suit your situation, there are plenty of other ways to finance an EV. A secured consumer loan (for personal buyers) or a chattel mortgage (for business buyers) are the most common alternatives.
A broker can walk you through the differences and help you decide which structure works best. Our guide on how EV finance works covers the main options.
For a wider overview of finance types, Aussie Finance Hub is a good starting point.