Salary packaging for police
novated leases, electric cars and what each force allows

The ATO calls it salary sacrifice, salary packaging or total remuneration packaging. You agree with your employer to take less salary before tax, and the employer pays for something on your behalf. Because your taxable income falls, you pay less income tax. Whether you come out ahead depends on how the benefit itself is taxed.

If the benefit attracts fringe benefits tax, someone pays 47% of its grossed-up value. Police packaging is cost-neutral to the employer, so that someone is you. That's why the useful items are those that are exempt or taxed lightly: super, an eligible electric car, and a short list of exempt work-related items.

Every police instrument we read allows packaging, but none lists the full menu. Most refer to the employer's or the state government's policy, which can change without the agreement changing. Here's what the clauses say, and what the government policy shows where we could read it.

The clauses protect you in one useful way. In NSW, WA and the NT, overtime, allowances, leave payouts or super are worked out on your salary before packaging, so packaging doesn't cut them. Victoria's EA says the same for super and every other purpose. For your own pay, see the take-home pay calculator.

This is the most common misunderstanding. Nurses, paramedics and charity staff can package everyday expenses because their employers have a special FBT exemption or rebate, capped per employee. Police forces aren't on that list, so there's no tax-free amount for living expenses.

If a police employer paid your mortgage, it would be an expense payment fringe benefit taxed at 47% on the grossed-up value. Because packaging is cost-neutral, that FBT would come out of your package. For someone on a 32% marginal rate, that's a large loss, so forces simply don't offer it.

A novated lease is a three-way agreement. You lease a car from a finance company, then your employer takes over (novates) the lease obligations while you work for them. Your employer pays the lease and running costs from your salary, part before tax and part after, and claims GST credits it passes on to you.

1. 1

   Choose a car and get a quote

   Quote

   The packaging provider quotes finance, a running-cost budget (fuel or electricity, servicing, tyres, registration, insurance) and a residual payment.

2. 2

   Sign the lease and the novation agreement

   Agreement

   The finance company, you and your employer sign. Your employer takes on the payments while you're employed.

3. 3

   Payroll deducts each pay

   Each pay

   Pre-tax deductions reduce your taxable salary. Any post-tax employee contribution reduces the car's FBT, often to nil.

4. 4

   Running costs are paid from the budget

   Ongoing

   The provider pays bills or reimburses you, and reconciles the budget at least yearly. Unspent budget may be returned to you as taxable salary.

5. 5

   At the end, pay the residual

   End of term

   You pay the balloon, refinance it into a new lease, or sell or trade the car to cover it.

For a petrol or hybrid car, FBT is usually worked out with the statutory formula: 20% of the car's base value, whatever distance you drive. Making a post-tax employee contribution equal to that taxable value reduces the FBT to nil. This is called the employee contribution method, and the ATO's own example uses it.

Since 1 July 2022, employers haven't paid FBT on private use of an eligible electric car, including through salary packaging. Registration, insurance, repairs, maintenance and the electricity to charge it are exempt too. That means the whole lease and running budget can come out of pre-tax salary, with no post-tax contribution.

Home charging can be costed at a flat 5.47 cents a kilometre for the FBT year from 1 April 2026 (it was 4.20 cents before), under the ATO's PCG 2024/2. A home charging station isn't a car expense, so it isn't covered by the car exemption. Electric motorcycles and scooters aren't cars and don't qualify.

On 5 May 2026 the Government announced it would replace the full exemption with a permanent 25% FBT discount, phased in. Treasury released draft legislation for consultation from 10 to 28 September 2026. As at 9 October 2026 it isn't law, so details could still change.

For a police officer, the practical message is timing. A car up to $75,000 keeps the full exemption if the arrangement starts before 1 April 2029, under the announced rules. A car above $75,000 needs to be committed before 1 April 2027 for full exemption. The ATO separately says the Government will review the exemption by mid-2027.

Don't sign a lease because a deadline is coming. Sign it because the car and the numbers suit you.

Suppose an eligible electric car costs $15,000 a year in lease payments and running costs, a hypothetical figure for illustration. Packaged in full before tax, here's what it costs each officer in take-home pay, compared with paying the same $15,000 from after-tax income.

The saving tracks your marginal rate. Officers taxed at 30% plus Medicare save about 32 cents in each packaged dollar; those in the 37% bracket save about 39 cents. The NSW Senior Constable saves about $5,128 a year before fees, interest and the reportable benefit effects below.

Petrol and most hybrid cars aren't exempt, so FBT applies unless you cover it with an after-tax contribution. Take a hypothetical $40,000 car with $14,000 a year of lease and running costs, for the same NSW Senior Constable on $139,688.

The tax saving here is about $2,248 a year, against roughly $5,128 for the electric car. That gap is why the electric car exemption gets so much attention. GST savings and fleet discounts can narrow it, so compare quotes on the total cost over the lease.

When an employee's fringe benefits have a taxable value over $2,000 in an FBT year, the employer must report the grossed-up value on the income statement. Reportable benefits use the lower gross-up rate of 1.8868. For an exempt electric car, the employer works out a notional taxable value as if FBT applied.

That reported amount doesn't change your income tax. It is added back for several tests. For the NSW Senior Constable with a HELP debt, compulsory repayments rise from $10,723 to $11,702: about $978 more, calculated by us. Their net gain falls from $5,128 to about $4,150.

Senior officers should read Division 293 for police before leasing an expensive electric car, because the reportable amount adds directly to Division 293 income. If you have a HELP debt, run both scenarios before signing.

If you leave, your employer's side of the deal ends. The lease usually reverts to you, so you keep paying from after-tax income, or you transfer it to a new employer that agrees. A transfer from, say, a state force to the AFP isn't automatic. Read our guide to resigning from the police before you sign a long lease.

The residual (balloon) is due at the end of the lease. On a 5-year lease of a $55,000 car, a 28.13% residual is about $15,472. Don't assume the car will be worth more than the residual when the lease ends; check current used prices for the model. If you're buying a home soon, lenders count the lease repayments; see police home loans.

Beyond super and cars, the list is short and employer-specific. Queensland is the only force where we could read the government's full item list. The government approves 15 FBT-exempt items for its employees, including super, professional association membership, income protection insurance, financial adviser fees and portable electronic devices.

That may not last. The ATO says that from 1 April 2027, portable electronic devices, computer software, protective clothing, briefcases and tools of trade will no longer be FBT-exempt when provided through salary sacrifice. They'll stay exempt when the employer provides them outside a salary sacrifice arrangement. If you're planning a work device purchase through packaging, check the timing.

Super remains the most widely available item everywhere. Our salary sacrifice guide shows how much cap room you have at each rank after your employer's 12% to 18% contribution. For deductions you claim yourself, see police tax deductions and car and travel deductions.

This is general information, not financial, tax or credit advice, and we don't recommend any provider or product. Your police association, a registered tax agent or a licensed financial adviser can look at your own situation. To check the budget side, our budgeting on shift work guide shows how to plan around a guaranteed fortnightly figure.