Australia's New Income Tax Cuts and Your Novated Lease
The Albanese Government's tax reform bill has passed Parliament. Here's what the income tax cuts mean if you're considering a novated lease in 2025.
Australia's income tax landscape just shifted. The Albanese Government's tax reform bill passed Parliament on 25 June 2026, locking in what the government describes as five income tax cuts delivered in three different ways — including the Working Australians Tax Offset and an instant tax deduction for workers (Source 1).
If you're a PAYG employee, lower income tax rates change the maths on salary packaging. A novated lease is already structured to reduce your taxable income — so when the underlying tax rates shift, the size of the benefit shifts too. It's worth understanding how they interact before you sign anything.
What this means for novated lease customers
A novated lease works by redirecting pre-tax salary to cover your vehicle costs, which reduces the income you're assessed on. The more tax you'd otherwise pay at your marginal rate, the more a novated lease can save you in pre-tax dollars.
When marginal rates change — as they're doing in stages under this legislation — the relative advantage of pre-tax salary packaging adjusts with them. For most average-income earners, the tax cuts are welcome but modest. The income threshold changes and the Working Australians Tax Offset (Source 1) are designed to benefit workers on lower and middle incomes, which is exactly the cohort that hasn't historically had access to the best salary packaging deals.
One thing that doesn't change: FBT-exempt electric vehicles remain one of the most straightforward salary packaging opportunities available to PAYG employees, regardless of which income tax round applies to you. If an EV is on your radar, that exemption is still live and worth running the numbers on.
Common questions
Do the new income tax cuts reduce the benefit of a novated lease?
Not necessarily. Lower marginal rates do mean slightly less pre-tax advantage per dollar packaged, but the net benefit of a novated lease still stacks up for most earners — especially when GST savings and FBT concessions are factored in alongside income tax. The maths just needs to be recalculated with the new rates in mind.
What is the Working Australians Tax Offset mentioned in the bill?
It's a new tax offset included in the reform package, designed to reduce the tax burden for Australian workers. The specifics of how it applies to your situation depend on your income and circumstances — the Treasury release at Source 1 has the official detail, and your employer's payroll team or a licensed adviser can explain what it means for your take-home pay.
Does the EV FBT exemption still apply after this legislation?
Yes. The FBT exemption for eligible battery electric and plug-in hybrid vehicles is separate legislation and remains in place. This tax reform bill does not alter it.
When do the tax cuts actually take effect?
The government has described a staged rollout, with the full benefit to the average worker projected to reach up to $2,816 per year by 2028, according to the Treasury Ministers' release. Each round has its own start date — check the official release for specifics before budgeting around them.
Should I wait for the tax cuts before setting up a novated lease?
Probably not. Novated lease terms are typically 1–5 years, so staging your start around a future tax change adds complexity without a guaranteed payoff. The FBT and GST benefits start from day one — delaying usually just means paying more for your car in the meantime.