The 2026 Tax Cuts: What They Mean for Your Novated Lease
The Albanese Government's 2026 tax reform bills are in Parliament. Here's what PAYG employees with a novated lease need to know. Plain English, no spin.
On 27 May 2026, the Albanese Government introduced two new bills — the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 — into Parliament. According to the Treasury Ministers release (Source 1), the package is designed to deliver another round of income tax cuts for more than 13 million Australian workers, simplify tax time, and help roughly 75,000 Australians into home ownership.
The headline measure is a new Working Australians Tax Offset (WATO). The stated goal — as framed by Treasurer Chalmers — is to better align the tax treatment of income from work with income from assets. That's a meaningful shift in philosophy, even if the practical effect on most workers will take time to filter through.
What this means for novated lease customers
Novated leasing is a pre-tax salary packaging arrangement. Its core appeal is simple: you use gross salary — before income tax is applied — to cover car running costs, which reduces your taxable income and, in turn, reduces the tax you pay. Any policy that cuts income tax rates changes the baseline you're comparing against.
If your marginal tax rate falls, the gross savings from salary packaging shrink slightly in dollar terms — that's the honest version of this story that most brokers won't tell you. But novated leasing still stacks up for most PAYG employees, particularly on eligible electric vehicles where the FBT exemption removes the other main cost of the arrangement entirely. The key is running your own numbers with the new rates once the legislation passes, not relying on projections built on the old schedule.
According to the Treasury Ministers release (Source 1), this is described as the first tranche of reform — so further changes may follow. We'll update this page as the legislation moves through Parliament.
Common questions
Does a lower income tax rate make novated leasing less worthwhile?
Not necessarily, but it does reduce the size of the pre-tax advantage. The biggest driver of novated lease value right now is the FBT exemption on eligible EVs, which is unaffected by income tax rate changes. For petrol and diesel vehicles, it's worth re-running your comparison once the new rates are legislated.
When do the new tax rates take effect?
The bills were introduced on 27 May 2026 and still need to pass both houses of Parliament before becoming law. No commencement date has been confirmed in this release. Check back here or watch the ATO for updates.
What is the Working Australians Tax Offset (WATO)?
Based on the Treasury announcement, the WATO is a new tax offset aimed at workers earning income from employment. Full design details will be in the bill's explanatory memorandum — we'll break down the specifics once the legislation is publicly available.
Does this change the FBT rules on electric vehicles?
There is no mention of FBT changes in this announcement. The existing FBT exemption for eligible battery electric and plug-in hybrid vehicles appears to remain in place under current law.
Should I wait before signing a novated lease?
This reform is about income tax rates, not the structure of novated leasing itself. There's no indication that the salary packaging framework is changing. If the car and the numbers work for you now, waiting on unrelated tax reform is unlikely to materially change the outcome.