If you work for a public hospital, a not-for-profit hospital, an ambulance service or a registered charity, your employer may be able to offer salary packaging that is free of fringe benefits tax (FBT) up to a cap, which most other employers cannot. A novated lease on a car draws on that same allowance. Whether the car fits inside it, or pushes you over it, can change what the car really costs you.
This guide is for salaried health and charity workers planning a car purchase who want to compare a novated lease with an ordinary car loan on complete figures. It explains the Australian Taxation Office's capping thresholds, works through our own calculation for two car prices in the FBT year from 1 April 2026 to 31 March 2027, and finishes with questions to put to your salary packaging provider. All ATO and ABS pages were checked on 9 November 2026.
Why this matters to more workers each year
Public sector health employment keeps growing. The Australian Bureau of Statistics reported on 5 November 2026 that public sector employee jobs in health care and social assistance rose by 29,700 (4.4%) in the year to June 2026, the largest increase of any industry, and that public sector cash wages and salaries in that industry rose 8.5% in 2025-26. The ABS warns against dividing those totals into an average pay figure, so we have not done that here. What the figures do show is a large and growing group of employees whose employers can offer capped FBT-free packaging.
The two caps: $17,000 and $30,000
The ATO says a not-for-profit employer is exempt from fringe benefits tax up to a capping threshold per employee if it is a public benevolent institution or health promotion charity registered with the Australian Charities and Not-for-profits Commission and endorsed by the ATO, a public or not-for-profit hospital, or a public ambulance service. The thresholds are:
- $30,000 for public benevolent institutions and health promotion charities.
- $17,000 for public and not-for-profit hospitals and public ambulance services. If an organisation is both a public benevolent institution and a hospital, the hospital threshold applies.
The cap is measured on the grossed-up value of the benefits, not their face value, and it is per employee for the whole FBT year, even if you only worked there for part of it. Car parking benefits do not count towards the cap. Meal entertainment and entertainment facility leasing benefits do not count unless they are salary packaged, and salary packaged amounts of those kinds have a separate $5,000 cap. These thresholds apply for the FBT years ending 31 March 2023 to 31 March 2027.
If your benefits for the year exceed the cap, the ATO says your employer must calculate and pay FBT on the excess. The FBT rate for the year ending 31 March 2027 is 47%.
How a novated lease car is valued
The ATO lists cars among the common fringe benefits included in salary sacrifice arrangements, and its own salary sacrifice example values the car with the statutory formula: the car's base value, multiplied by 20%, multiplied by the share of the year the car was available for private use, less any after-tax contribution you make. The base value is broadly the cost price including GST and dealer delivery, but not registration or stamp duty.
To compare a car with the cap, that taxable value is grossed up. In the ATO's 2026 worked examples for not-for-profit employers, car benefits are type 1 benefits because the employer is entitled to GST credits, so they are multiplied by the type 1 rate of 2.0802. In the ATO's public hospital example, a car with a $25,000 taxable value grosses up to $52,005, which is $35,005 over the $17,000 cap.
That multiplier is why a car uses up the cap much faster than its taxable value suggests.
Worked example: a $40,000 car and a $60,000 car
These figures are our calculation using the ATO's published rates. They assume the car is available for private use for the full FBT year (365 days), there is no after-tax contribution unless stated, the type 1 rate applies, and no other packaged benefits count towards the cap unless stated.
A $40,000 car (base value)
- Taxable value: $40,000 × 20% = $8,000.
- Grossed-up value: $8,000 × 2.0802 = $16,641.60.
- Hospital worker, nothing else packaged: $16,641.60 is under the $17,000 cap, so no FBT is payable. Only $358.40 of cap room is left for anything else.
- Hospital worker who already packages the full $17,000 in other benefits: the whole $16,641.60 is excess, and FBT at 47% would be about $7,821.55 for the year.
- Charity worker with the $30,000 cap and nothing else packaged: no FBT, with $13,358.40 of cap room left.
A $60,000 car (base value)
- Taxable value: $60,000 × 20% = $12,000.
- Grossed-up value: $12,000 × 2.0802 = $24,962.40.
- Hospital worker, nothing else packaged: $7,962.40 over the $17,000 cap, so FBT of about $3,742.33 for the year.
- Charity worker with the $30,000 cap and nothing else packaged: under the cap, so no FBT.
The second hospital case is the one to watch. If you already package other expenses up to the cap, a car added on top gets no help from the cap at all.
Who pays the FBT on the excess
The ATO's guide to salary sacrificing for employees says that if your employer must pay FBT, it may ask you to make an employee contribution to reduce it. Under the formula, an after-tax contribution equal to the taxable value ($8,000 a year for the $40,000 car) reduces the taxable value to nil. That removes the FBT, but it is paid from your after-tax pay, so it reduces the saving from packaging the car.
How your arrangement handles this is set by your employer's packaging policy and your salary packaging agreement. Ask for it in writing before you sign.
Exempt does not mean invisible: reportable fringe benefits
A benefit that is exempt only because your employer is an exempt not-for-profit is still reportable. The ATO says the employer works out the notional taxable value as though it were not exempt and reports it on your income statement.
Your reportable fringe benefits amount is grossed up at the type 2 rate of 1.8868. It is not taxed, but the ATO says it is included in income tests for some government benefits and obligations. In our $40,000 example with no after-tax contribution, that would be $8,000 × 1.8868 = $15,094.40. Check how that figure affects any income test that matters to your household before you sign.
Eligible electric cars
The ATO's electric cars exemption, last updated 1 April 2026, means no FBT is payable on the private use of an eligible battery electric or hydrogen fuel cell car that was first held and used on or after 1 July 2022 and on which luxury car tax has never been payable. Salary packaged cars are included. Plug-in hybrids have not counted as zero or low emissions vehicles since 1 April 2025, except for some arrangements already in place.
The ATO also says benefits that would be exempt even if your employer were not FBT-exempt are not counted towards the cap. On our reading, an eligible electric car should therefore leave your $17,000 or $30,000 cap available for other expenses. Confirm this with your packaging provider for your specific car. The benefit is still reportable, and the ATO says the government will review the exemption by mid-2027.
Comparing a novated lease with a car loan
A car loan does not use your packaging cap and is not a fringe benefit. It is paid from after-tax pay, and you own the car from the start. A novated lease may lower your taxable income, but its full cost includes the lease's own interest rate, the administration and management fees, the running costs bundled into the budget, and the residual (balloon) payment at the end.
To compare them fairly:
- Get the novated lease quote with the interest rate, every fee, the residual and the total of all payments shown separately.
- Price a car loan for the same car, the same term and, if you want a like-for-like comparison, the same balloon.
- Work out what each costs you after tax across the whole term, including the FBT position above.
Our guide on how a novated lease works explains the packaging mechanics in more detail, and how car loan repayments are calculated shows the loan side. If you also run a business vehicle through a company, FBT on a company car uses the same statutory formula.
Questions to ask your salary packaging provider
1. Is my employer a hospital or ambulance service ($17,000 cap) or a public benevolent institution or health promotion charity ($30,000 cap)?
2. How much of my cap am I already using this FBT year, and how much would this car use?
3. If the car takes me over the cap, who pays the FBT, and will I be asked to make an after-tax contribution?
4. What is my reportable fringe benefits amount likely to be?
5. What are the lease interest rate, each fee and the residual, and what is the total of all payments?
6. What happens to the lease, the residual and any shortfall if I change jobs or leave the sector?
The bottom line
For a hospital worker, a modest car can fit inside the $17,000 cap on its own, but probably not on top of other packaged expenses. A charity worker's $30,000 cap leaves far more room. In every case, compare the complete novated lease cost with a car loan on the same car and term before you decide.
The figures in this article are the ATO's and ABS's published rates, rules and data, checked on 9 November 2026, and our labelled calculations. Tax rules can change and how they apply depends on your circumstances and your employer's packaging policy. This article is general information only and is not tax or financial advice. Speak to a registered tax agent or licensed financial adviser before entering a salary packaging arrangement.
