Salary Packaging

How salary packaging works

In a salary packaging arrangement, your employer agrees to provide certain benefits directly - rather than paying you the equivalent salary and having you buy the benefit with after-tax money. You receive a lower gross salary but also receive the benefit, and pay less income tax overall.

The tax saving comes from the difference between your marginal tax rate (up to 47% including Medicare levy) and any Fringe Benefits Tax (FBT) that applies. When FBT applies at the standard rate of 47%, there’s no net tax saving - the FBT exactly offsets the income tax saving. The value lies where FBT is lower than your marginal rate, or where specific FBT exemptions apply.

EVs under salary packaging - the most valuable current application

The FBT exemption for battery electric vehicles (introduced by the Treasury Laws Amendment (Electric Car Discount) Act 2022) makes EV novated leases the most tax-effective clean energy application of salary packaging.

With no FBT payable on an eligible BEV under $91,387 (the luxury car tax threshold), the entire vehicle cost - lease payments, registration, insurance, servicing, charging - is packaged pre-tax. For an employee on a 37% marginal rate packaging a $55,000 EV at $15,000/year in lease costs, the after-tax cost might be closer to $9,500/year - a $5,500 annual saving.

PHEVs lost FBT exemption eligibility on 1 April 2025. Only battery-electric vehicles (and fuel cell EVs) qualify under the current rules.

FBT-exempt employers

Employees of certain organisations - most public hospitals, non-profit charities, and some public benevolent institutions - can salary package a much wider range of benefits under existing FBT exemptions (separate from the EV exemption). These employees can sometimes package solar or battery storage costs as part of their salary packaging allocation, subject to employer policy and scheme rules. Check with your employer’s salary packaging provider.

What salary packaging cannot do for residential solar

For standard for-profit employees, residential solar installations are not salary-packageable. They don’t fall within any existing FBT exemption, and packaging them without an exemption doesn’t save tax (FBT offsets the income tax saving). The EV FBT exemption is the cleanest opportunity in the current policy environment.