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Just about everyone who earns income pays tax.  

Your gross salary (salary before tax is calculated) determines how much you pay, and it is calculated each pay cycle.   Our tax system works progressively. That is, the more you earn, the higher the percentage of tax you pay from your earnings.  Our tax system also deducts tax each time you are paid. This is known as Pay As You Go (PAYG).  

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Gross Salary per fortnight


Taxable Income $1500.00
Superannuation $142.50
Minus: Income Tax $162.00
Minus: Medicare Levy $30.00
Take Home Pay $1308.00

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The more gross income you have or if you worked overtime, or got a bonus or commissions, the more tax you will pay in that pay cycle.

Can I reduce my taxable income?

The only legal way to reduce your gross salary is through something known as deductions.

If you have worked throughout the year and earned an income you would complete your tax return (end of financial year at June 30) This is essentially an audit to ensure you have either paid enough tax, or paid too much.

Depending on your deductions you may get a tax refund.  A tax return is the ATO giving you a refund of ‘overpayment’ of tax collected throughout the year.  That is; if you paid $10,000 in tax, but at tax time it is found that you only should have paid $9,500 in tax – you will get a refund of $500.

Novated lease equals tax deductions – every pay

With a salary packaged novated lease the annual total for your finance and running cost budgets (fuel, servicing, tyres, insurance, registration and CTP and roadside assistance) are turned into a fortnightly/monthly budget and a portion of this total is deducted from your gross salary each pay.  For example, the fortnightly cost for this car is $250 per fortnight.

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Gross Salary per fortnight


Superannuation $142.50
Salary Packaging Deduction $250.00

New Taxable Income


Minus: Income Tax $128.00
Minus: Medicare Levy $25.00
Take home pay $1122.00


$39.00 per pay

Difference 12 months:


Difference over 5 year term


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The benefit explained

In the first example $162 was paid in tax and $30 in Medicare.  In the second example, salary packaging was applied ($250 package for a car and it’s running costs).

This reduced the taxable income to $1250.00 saving $39.00 in tax on that pay.

A full $250.00 of value was still there to pay for all the costs of the car, but in fact in only cost $211.00

If you did not salary package – the car would still cost $250, but you would be paying these costs from your after-tax salary.

This effectively gives you an instant tax refund each pay – more than what the average taxpayer would be able to claim at the end of the year if they used their car for work.

With salary packaging – you do not need to keep logbooks and can use your car 100% for personal use.   Fully legal and approved by the ATO.

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This example is for illustrative purposes only. You should seek financial advice to see if salary packaging or a Novated Lease suits your personal circumstances