Australia's 2026 Tax Reform: What It Means for Novated Leasing
The Albanese Government's 2026 tax reform bills are reshaping take-home pay for 13M workers. Here's what PAYG employees need to know about novated leasing now.
On 28 May 2026, the Federal Government introduced two 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]](https://ministers.treasury.gov.au/ministers/Jim-Chalmers-2022/media-releases/Government-introduces-first-tranche-of-tax-reform-legislation), the package is designed to deliver another round of income tax cuts for more than 13 million Australian workers, simplify tax time, and help an estimated 75,000 Australians into home ownership.
The headline measure is a new Working Australians Tax Offset (WATO) — though the full mechanics are still working through Parliament. What matters for PAYG employees right now is straightforward: any change to your marginal tax rate directly affects how much you benefit from salary packaging arrangements like novated leasing.
What this means for novated lease customers
Novated leasing works by redirecting pre-tax salary to cover vehicle running costs, which reduces your taxable income. The bigger the gap between your marginal tax rate and the FBT effective rate, the more you stand to gain from the arrangement. If the reform lowers your marginal rate, that gap may narrow slightly — so it's worth reviewing whether your current or planned novated lease still stacks up under the new settings.
That said, for most middle-to-higher income earners the pre-tax benefit of a novated lease remains material, and the FBT exemption for eligible electric vehicles (still in place as at this update) adds another layer of potential savings on top. The key is running the numbers against your actual post-reform income tax position — not last year's rates.
Novated leasing also still shields you from GST on the vehicle purchase price and running costs, which is unaffected by income tax changes. That structural advantage doesn't disappear with a rate cut.
Common questions
Does a lower income tax rate make novated leasing less worthwhile?
Not necessarily, but it does change the maths. A lower marginal rate reduces the pre-tax benefit slightly, but the GST saving and — for eligible EVs — the FBT exemption remain intact. Run an updated comparison once the final rates are legislated.
When do the new tax rates take effect?
The bills were introduced on 27 May 2026 and must still pass both houses. Commencement dates will be confirmed in the final legislation. Check the Treasury Ministers source linked below for the latest status.
What is the Working Australians Tax Offset (WATO)?
It's a new offset announced as part of the 2026 tax reform package, aimed at reducing the income tax burden on wage and salary earners. The full eligibility criteria and offset amounts are contained in the bills currently before Parliament.
Does the reform affect the EV FBT exemption?
There is nothing in this particular legislation targeting the EV FBT exemption. It remains in place for eligible battery electric and plug-in hybrid vehicles, subject to the existing rules and the luxury car threshold.
Should I wait for the legislation to pass before starting a novated lease?
Novated leases typically run two to five years, so your tax position will shift multiple times regardless. Waiting for perfect certainty usually costs more than acting on current settings — but a licensed adviser can help you model both scenarios.