What is a salary sacrificed EV Novated Subscription?

25 July 2023

The demand for Electric Vehicles is at an all time high, and novated car subscriptions provide a flexible and cost-effective option for those looking to embrace sustainable mobility without long term financial commitments. With an EV novated subscription, you can drive an electric vehicle of your choice while paying for the subscription using salary sacrifice. This arrangement allows you to save on GST and tax for both the vehicle’s cost and all running expenses, as well as reduce your taxable income. 

Who is an EV Novated Subscription suitable for? 

An EV novated subscription is suitable for absolutely anyone who wants to drive an EV for lower cost. The shorter term plans available on subscription, usually 6-9 months are perfect for new employees, anyone who wants to try before they buy, or even just car enthusiasts who like the idea of getting a new EV every 6-12 months. If you want the luxury of driving an EV while saving money on tax and avoiding owning a depreciating asset, an EV subscription is the perfect option for you

Drive the latest BYD ATTO 3 on an EV Novated Subscription

What is the difference between a novated subscription and novated lease? 

Novated subscriptions work slightly different to a novated lease. A subscription is generally a more flexible option of car ownership where you commit to a new EV for a 6-12 month period. You also have the option to renew and even swap the EV type at the end of each subscription plan. Subscriptions includes the cost of the vehicle, registration, insurance, roadside assistance and any servicing or maintenance. PLUS you enjoy a new car feeling over and over again. 

With a Novated lease, this is a slightly more traditional car ownership option where you are financing the vehicle over a typically 5-7 year time period and have a balloon payment at the end to purchase the car. With novated leases, your running costs are separate from the finance amount including all servicing and maintenance. You also have the burden of depreciation of the vehicle over a long period of time.  

Tesla on a salary packaged EV Novated Subscription

How does salary sacrificing a car work?

Salary sacrificing a car on subscription involves an arrangement between an employee and their employer and the supplier of the vehicle. A portion of the employee’s pre-tax salary is redirected towards the subscription service and running costs of a car. This arrangement can offer certain tax advantages, as the sacrificed amount is not subject to income tax. Here’s how it generally works:

  • Eligibility: Check with your employer to determine if they offer salary sacrifice programs and if you meet the eligibility criteria. Typically, this option is available to employees who receive a salary and are not self-employed.
  • Choose a car: Select an EV that meets your criteria. 
  • Salary sacrifice agreement: Once you’ve chosen a car, you’ll need to enter into a salary sacrifice agreement with your employer. This agreement outlines the T&Cs of the arrangement, including the amount to be sacrificed and the duration of the agreement.
  • Calculation of salary sacrifice amount: The amount you choose to sacrifice is deducted from your gross (pre-tax) salary. This means you’re reducing your taxable income by that amount, potentially resulting in lower income tax payments.
  • Subscribe to the car: The sacrificed amount is then used to subscribe the car. This includes weekly payments, where the employer takes responsibility for the car’s subscription. This may also include running costs such as insurance, registration, maintenance, and servicing. 
  • Ongoing expenses: The salary sacrificed can also be used to cover running costs such as charging costs. These expenses are typically paid from the sacrificed portion of your salary.
  • Stop or Swap: At the end of your subscription term you have the option to renew the subscription and swap to another new EV for your next subscription term.
Kia EV6 on Salary Sacrificed Novated Subscription

What are the benefits of salary sacrificing? 

Salary packaging can have a significant impact on your taxable income, potentially resulting in reduced income tax payments. Here’s an example to illustrate how it works:

Let’s say you earn a pre-tax salary of $100,000 per year. Through a salary packaging arrangement, you can choose to receive $85,000 as regular wages and sacrifice the remaining $15,000 towards an electric car subscription as a benefit.

According to the Australian Tax Office (ATO), you only pay income tax on the reduced salary amount. This will effectively reducing your taxable income to $85,000 in the example mentioned. As a result, you will pay income tax based on the lower amount, potentially leading to tax savings.

Additionally, when you salary package an EV subscription, you can also save on Goods and Services Tax (GST). This is because your employer can claim a GST input tax credit on the subscription costs, reducing the overall GST liability.

Compare an EV Novated Subscription Vs. an EV Novated Lease

To learn more about the difference between an EV Novated Subscription and an EV Novated Lease, you can read our blog Exploring a salary sacrificed EV Novated Subscription.

Find the answers you need in our FAQ