• Salary packaging a car allows you to use pre-tax income to cover both the vehicle and its running costs, offering potential tax benefits.
• The lease usually includes everything from fuel to insurance, making budgeting easier, but it comes with responsibilities and fine print.
• Choosing the right vehicle impacts long-term value, with electric and fuel-efficient cars offering additional perks.
• Understanding the lease terms, employer policies, and end-of-lease options is essential before signing any agreements.

If you were told you could drive a new car and maybe save money on taxes, you’d be interested, right? Salary packaging is especially useful for vehicles because of this promise. An increasing number of Australians are using this benefit provided by their employers and if you’re interested in learning more, you’re not alone.

Salary packaging your car means you can use your income before taxes to pay for it and its upkeep. Yes, it sounds great, but it helps to learn more before getting involved. It will explain salary packaging, the benefits and drawbacks and how to make sure you use it wisely.

If you’re just getting into finance or if you’ve heard the term before, this is the place to get clear explanations without the confusing finance terms.

How Does Salary Packaging Work and What Is It?

We should begin with the essentials. When you salary package, you choose to have less money in your paycheck in return for some benefits. The benefits might be a laptop, help with superannuation or even a car.

When it comes to cars, the standard practice is called a novated lease. This agreement is formed by you, your employer and a leasing company. The government takes the money for your car and related costs from your salary before you are taxed. As a result, the amount of tax you owe can be reduced.

Here’s the usual way it happens:

After you choose a car, the leasing company buys it for you. You decide on the length of the lease (usually one to five years) and your employer will pay for it from your salary. These include the car loan as well as costs for rego, fuel, insurance and servicing.

You have three options at the end of the lease: return the car, refinance it or pay a large sum (called a balloon payment) to buy it outright.

Keep in mind that salary packaging a car isn’t only about getting a nice car. This strategy may be suitable for you if you earn enough, have a steady job and like the idea. Even so, there are some important details in the fine print that we’ll cover later.

Why Many Turn to Experts for Car Packaging

The idea of salary packaging sounds straightforward until you start dealing with lease terms, GST credits, and fringe benefits tax. That’s where many people realise they’d rather not go it alone — and why turning to experts is so common.

If you’ve never heard of novated lease specialists, don’t worry. These professionals help people like you understand the ins and outs of salary packaging a car. They can take a complex process and break it down into clear, manageable steps. From choosing a vehicle to handling tax paperwork, they ensure everything is set up correctly.

Working with someone who understands the process is a big advantage because they can personalise it for you. No two people are the same — your income, your car use and your job plans are all different. The lease structure can be adjusted by specialists to match what you require, so you’re not missing out on any benefits.

They can connect you, your employer and the leasing company, saving you a lot of time. You don’t have to figure out tax talk or bargain prices on your own; your dealer will handle it for you.

Local experts can also give you extra benefits. They know the tax laws and benefits offered in your state and often team up with reliable service providers near you. If you’re looking for a hassle-free way to get a packaged car, working with novated lease specialists is a good idea.

The Advantages and Disadvantages of Financial Aspects

Once you calculate the numbers, it’s simple to understand why people like salary packaging their cars. Paying for a vehicle with pre-tax dollars can help you save, but there are some important things to keep in mind before deciding.

The main benefit is that it helps lower your taxable income. Since you pay for your lease with pre-tax money, you’re using your income more efficiently. In some cases, you may end up paying less income tax for the year, which could be thousands of dollars, depending on your tax bracket and the car’s cost.

There’s also GST to consider. You don’t have to pay GST on the purchase price because the leasing company is the one buying the car. You’ll save 10% on the price of the car right away. You can also include running costs such as servicing, rego, insurance and fuel in your lease and any GST credits will be applied as needed.

Still, there are some negatives as well. The Fringe Benefits Tax (FBT) is one of the more difficult rules, as it covers non-cash benefits like a car. FBT will reduce your tax savings from salary packaging, unless you drive your car mainly for work or a low-emission vehicle which may lower your FBT.

Another problem is that schedules are not always flexible. If you quit your job, you still have to pay for your apartment as the lease doesn’t go away. Some businesses will move your lease to a new employer, but others will not. Although most salary packages offer a fully maintained lease, you are still responsible for any damage or extra wear and tear.

Imagine that a person is making $90,000 a year before taxes to see the impact better. If they salary package a car worth $30,000, the amount of tax they pay could go down a little. With lease deductions, their net pay could still go up, and all the costs associated with their car are included in a single, reliable payment. If employees leave their job after six months, they may have to pay early exit fees and could still be responsible for a lease they can’t afford.

The takeaway? It can be very useful if it matches your needs, but it’s important to check the numbers and plan in advance.

Selecting the Best Vehicle for Your Package

When you understand how salary packaging operates, the next step is to pick which car you want to package. It’s easy to pick the most impressive car you can afford, but the right vehicle can make a big difference in how much you gain from the deal.

First, it’s important to understand that some cars lose value, require more maintenance and use more fuel than others. Those three points are very important in a novated lease. A car that keeps its worth and doesn’t use much fuel will probably be a better value during your lease period.

Many people choose small—to mid-sized sedans and compact SUVs since they are both affordable to drive and insure. If you look for reliability, Toyota, Mazda and Hyundai are good choices because they require little maintenance and fewer trips to the mechanic.

Australia is seeing more people choose electric vehicles (EVs), thanks to recent changes in government policies. At times, EVs are not subject to Fringe Benefits Tax which helps you save more in taxes. It’s important if you want to save money over the entire lease period.

You should also consider the ways you use your car. When your car is mainly for commuting and the occasional weekend journey, a car that’s easy to maintain and use is probably right for you. If you’re always on the road or your family is getting bigger, you could consider a bigger SUV or a ute, but keep in mind that the running costs can be high and will lower your take-home pay.

Keep in mind that salary packaging isn’t only about what you pay for the car. The budget in your lease covers costs for servicing and roadside help. In fact, a cheaper car that costs more to maintain might not be a wise choice. A good choice is one that is affordable, efficient and reliable and fits your way of life for the long run.

It’s important to remember: the lease ends, but you still don’t own the car. If you plan to pay for the vehicle later, pick one you’ll still like to drive in three or five years, not just the one that looks best now.

What to Expect Throughout the Lease Term

Once you’ve signed the dotted line and driven off in your new car, you’ll enter the ongoing phase of your salary packaging arrangement — the lease term itself. This is when you’ll feel the day-to-day benefits and responsibilities of the deal.

Your regular payments will be deducted directly from your salary, typically covering everything bundled into a fully maintained lease. That means the costs for servicing, insurance, registration, fuel, and even tyres are rolled into one predictable monthly amount. For many people, that simplicity is a huge draw. No surprise mechanic bills, no scrambling to find funds when rego is due — it’s all handled in the background.

But don’t let the ease fool you into thinking it’s completely hands-off. You’re still responsible for staying within the terms of the lease. That might include restrictions on how much you drive each year, maintaining logbooks if required, and keeping the car in good condition. Go over your kilometre allowance or neglect routine maintenance, and you could face penalties at the end of the lease.

Speaking of the end, what happens when your lease term is up? You’ll generally have three choices: return the vehicle, trade it in for a new lease, or pay a residual value (often called a balloon payment) to keep the car. That final payment is agreed upon at the start of the lease and reflects the car’s expected value at the end of the term.

Buying it out might make sense if you’ve looked after the car and still love driving it. But if your needs have changed or the vehicle hasn’t held up as well as you’d hoped, handing it back and starting fresh can be the smarter move. Knowing your options early on will help you plan better and avoid any last-minute financial surprises.

Questions to Ask Before Signing Anything

It’s important to ask a few vital questions before you start salary packaging, since these could determine whether it works well for you.

Before anything else, find out what your employer’s policy is on novated leases. Not all companies offer them and even those that do may have a certain provider or have specific rules for their use. You should also find out what will happen if you leave your job, take unpaid leave or are made redundant. Is the lease going to be renewed? Is it possible to give the right away? Who handles the payments when you don’t have a salary?

After that, look over the terms of the lease. What services are part of the maintenance plan? Is there a limit to how much you can spend on fuel or tyres? Some plans have many benefits, but others are basic and may require you to pay extra.

It’s important to figure out what the vehicle will be worth at the end of the lease. Many people are surprised when they have to pay the whole amount at the end. Be aware of what the amount is and your choices when the lease comes to an end.

It’s also a good question to ask: Can the vehicle be customised? If you want to add roof racks or a better sound system, make sure it’s permitted by your lease and that the cost is included in your salary package.

In the end, look into different providers. Certain leasing companies offer more flexible terms, better care or are more transparent than the rest. If you’re not sure what to do first, find out what people have said about the company or ask your colleagues for advice.

If you ask these questions in advance, you can prevent being disappointed later. A car is a major responsibility, especially when it’s connected to your earnings. If you do your research ahead of time, you’ll feel more confident and can make the most of the arrangement.

Conclusion

Salary packaging a car can be a smart way to increase your income while enjoying the convenience of a newer, well-maintained vehicle. For many people, it offers a more manageable and potentially tax-effective way to drive, with the bonus of streamlined budgeting and support from leasing providers.

But like any financial move, it’s not something to jump into without a clear understanding of the terms. There’s much to weigh up, from tax implications to end-of-lease options. The right choice will depend on your lifestyle, income, and long-term plans — and it’s always worth getting advice tailored to your situation.

If you’re considering salary packaging a car, take the time to understand how it works and what it means for your day-to-day finances. It can be a smooth, cost-effective way to drive the car you want, with fewer surprises along the way.