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NSW Health’s “Employer Share”: a special case in novated lease

If you work in NSW Health and have ever looked closely at salary packaging or novated leasing, you may be aware of the following:

NSW Health retains a share of the tax savings from your salary-packaging benefits.

This applies not only to novated leases but to all salary packaging benefits.

As someone who has spent an extensive amount of time modelling novated leases and salary packaging maths, this is one of my long-standing topics of interest.

This matters because it significantly reduces the net benefit of salary packaging and novated leases for NSW Health employees compared with their interstate counterparts.

The Federal Incentive (What Should Happen)

At the federal level, public hospital employees are entitled to FBT-exempt salary packaging, most commonly:

  • $9,010 per year for living expenses
  • $2,650 per year for meals and entertainment
  • Plus FBT-exempt novated lease amounts

These are federal tax concessions.

They exist to improve take-home pay for healthcare workers.

Example: Top Tax Bracket

If you are on the 45% marginal tax rate + 2% Medicare levy, then:

  • $9,010 of normal income would have been taxed at 47%
  • Tax otherwise paid = $4,234.70
  • With FBT-exempt salary packaging, that tax is not paid

You save $4,234.70 per year.

So far, so good.

Application of the Employer Share

NSW Health has implemented a policy that applies an “Employer Share”, requiring staff to surrender roughly half of the tax benefit they receive from salary packaging.

Continuing the example above:

  • Your federal tax saving: $4,234.70
  • NSW Health takes ~50%
  • Employer share retained by NSW Health: $2,117.35

This applies to:

  • the $9,010 living-expense cap,
  • the $2,650 meals-entertainment cap, and
  • every dollar of novated lease packaging.

(Note: As explained in latter section, the lost benefit is not strictly 50%; however I am keeping the numbers simple here only for illustrative purpose.)

How Did This Ever Become a Thing?

The official justification is rooted in historical industrial bargaining.

The NSW Health Salary Packaging Policy was established in 2002, determining a shared arrangement of tax savings between NSW Health and its employees to assist in funding a wage increase.

At that time:

  • an agreement was reached to share a portion of the federal tax incentive
  • in exchange for a wage increase
  • without a sunset clause

As a result, doctors, nurses, and future generations of NSW Health staff continue to lose a significant portion of salary-packaging benefits to the employer, long after the initial wage agreement.

“But Didn’t Some Staff Get This Removed?”

Yes — but not everyone.

From 2024, several awards (notably HSU-covered roles) successfully removed the employer share, including:

  • allied health professionals
  • medical scientists
  • administrative and clerical staff
  • cleaners, orderlies, catering, security, and support staff

However:

Doctors and nurses still pay the employer share.

If you are a clinician or a nurse considering a novated lease, this matters a lot.

Is It Really “50% of Your Saving”?

This is where the maths gets interesting — and more nuanced.

NSW Health does not literally deduct “50% of your tax saving” as a simple percentage.
Instead, they define employer share as:

Employer Share = Disposable income (with packaging) − Disposable income (without packaging)

This amount is collected pre-tax, which leads to a counter-intuitive result.

Effective Loss Compared to Other States

After working through the full derivation (and confirming against NSW Health’s own examples), the true loss compared to interstate colleagues is approximately:

Marginal Tax Bracket Effective Benefit Lost
30% + 2% ~40%
37% + 2% ~38%
45% + 2% ~35%

So no — NSW Health does not take a clean 50% of your benefit.

But yes — you still lose over a third of what colleagues in other states keep.

Full algebraic derivation by me (PDF)

Relevance to novated lease

What it means in the context of novated lease:

  • Employees face higher effective lease costs
  • Packaging companies remain profitable
  • The impact on adjusted taxable income (and hence subsidy and liability) remains the same as the case without NSW Health taking the benefit!

While people on higher marginal tax brackets may still potentially derive net profit, for people on 30+2% marginal rate, it is possible for the net economical impact to be near zero once everything is accounted for.

The novated lease spreadsheet has a built-in function to evaluate the net cost of the novated lease, and the section on adjusted taxable income helps evaluate the impact on ATI-related means-testing e.g. childcare subsidy and HECS repayment.

Key takeaway

NSW Health doctors and nurses are significantly disadvantaged in their achievable benefit due to the employer share, and the deal may no longer be attractive after considering the impact on government subsidies and liability.

Optional Support

Both this guide and the spreadsheet are free. If they prove helpful, consider: