The July 2026 Tax Cut: What It Means for Your Novated Lease
From 1 July 2026, over 14 million Australians get another income tax cut. Here's how lower tax rates interact with novated leasing benefits. Read more.
From 1 July 2026, the Albanese Government is delivering another income tax cut to over 14 million Australian taxpayers — a reduction of up to $268, according to the Treasury Ministers release. This is part of a longer-term plan to reduce the average worker's income tax by up to $2,816 a year by 2027–28.
On its face, more money in your pocket sounds like a straightforward win. But if you hold or are considering a novated lease, there's a layer worth understanding — because the tax benefit from novated leasing and your marginal income tax rate are directly connected.
What this means for novated lease customers
Novated leasing works by redirecting pre-tax salary to cover your car's running costs, which reduces your taxable income and therefore the amount of income tax you pay. The size of that benefit scales with your marginal tax rate — the higher the rate you pay, the more you save by pushing dollars through a novated lease before tax bites.
When marginal rates fall — as they do under these staged cuts — the raw tax-saving component of a novated lease adjusts accordingly. That doesn't make novated leasing less worthwhile; for most PAYG employees it remains one of the most effective after-tax ways to run a car, especially for eligible electric vehicles where FBT is currently exempt [Source 1]. But it does mean the numbers shift, and anyone who ran a comparison 12 or 24 months ago should run it again with post-July 2026 rates in mind.
Younger workers — called out specifically in the Treasury announcement as the largest share of beneficiaries — are also the cohort most likely to be entering the workforce and considering their first novated lease. Lower tax rates mean lower take-home pay erosion, which can make the pre-tax structuring of a novated lease comparatively more or less attractive depending on individual circumstances. Talk to a licensed adviser before committing.
Common questions
Does the July 2026 tax cut reduce my novated lease savings?
Not necessarily — it adjusts them. The pre-tax benefit from novated leasing is linked to your marginal rate, so when that rate changes, the quantum of the tax saving shifts too. For many employees the benefit remains substantial, particularly on EVs that attract no FBT.
I'm on a lower income and will benefit most from the tax cut — is a novated lease still worth it for me?
It depends on your specific income, the vehicle you want, and how many kilometres you drive. Lower-income earners still benefit from the GST savings and pre-tax running cost treatment, but the income-tax component of the saving is smaller. Use a calculator and speak to a licensed broker.
Are electric vehicles still FBT-exempt after 1 July 2026?
The FBT exemption for eligible EVs under the threshold was legislated separately and remains in place as at the date of this page. Always confirm current eligibility with a licensed adviser or the ATO, as policy can change.
Should I wait until after 1 July to start my novated lease?
Timing can matter at the margins, but the bigger drivers of value are the vehicle you choose, the term, and your salary level. Speak to millarX to model the difference — waiting rarely makes a dramatic difference either way.
What does 'up to $2,816 a year by 2027–28' mean for salary packaging?
That figure from Treasury represents the cumulative income tax reduction, not a novated lease figure. As your overall tax burden falls, it's worth revisiting all salary packaging arrangements to make sure they're still optimally structured.