Income Tax Cuts Just Passed — Here's the Novated Lease Angle
Australia's 2026 tax reform bill is now law. Lower income tax changes how novated leasing stacks up. Here's what PAYG employees need to know.
The Albanese Government's tax reform bill passed Parliament on 25 June 2026 and is now law. According to the Treasury Ministers media release, the package delivers five income tax cuts across three mechanisms — including the Working Australians Tax Offset and an instant tax deduction for workers — with the average worker set to benefit by up to $2,816 a year from 2028.
That's genuinely significant. But before you assume lower income tax is straightforwardly good news for novated leasing, it's worth thinking through the interaction carefully.
What this means for novated lease customers
Novated leasing works by reducing your pre-tax salary, which lowers the income tax you pay. The bigger the gap between your marginal tax rate and the FBT rate (currently 47%), the more a novated lease can work in your favour.
When income tax rates fall — as they will under this reform — the tax benefit of salary packaging compresses slightly for some employees, particularly those who drop into a lower marginal bracket. That doesn't make novated leasing less useful; it means the maths shifts. For employees who remain in the top brackets, the benefit holds. For EV drivers, the FBT exemption on eligible zero-emission vehicles is a separate and still-active lever that doesn't depend on your marginal rate at all — it removes FBT from the equation entirely.
Bottom line: if you're considering a novated lease, the right move is to model your specific situation against the new tax thresholds once they take effect — not to assume the headline saving figure you've seen elsewhere still applies to you.
Common questions
Does the tax reform bill change FBT rates?
No. The bill addresses income tax, not Fringe Benefits Tax. The FBT rate remains at 47% and the FBT year runs separately to the income tax year. Any change to FBT would require separate legislation.
Does lower income tax make novated leasing less worthwhile?
It depends on your bracket. If the cuts push you into a lower marginal rate, the income tax saving from salary packaging narrows slightly. For EV leases, the full FBT exemption still applies regardless of your income tax rate, which makes it a different calculation entirely.
What is the Working Australians Tax Offset mentioned in the bill?
According to the Treasury Ministers media release, it's one of the mechanisms delivering tax cuts to workers under the reform package. The precise thresholds and phase-in dates are set out in the legislation itself — your tax agent can confirm how it applies to your income level.
Should I wait for the tax cuts before signing a novated lease?
Not necessarily. The cuts phase in over time, and a novated lease can be structured or refinanced as circumstances change. Waiting has an opportunity cost — you forego the pre-tax vehicle savings in the meantime. Get a personalised quote and compare the numbers for your situation now versus later.
Does the EV FBT exemption still apply after this reform?
Yes. The FBT exemption for eligible zero-emission vehicles is separate legislation and has not been altered by this bill. It continues to apply to qualifying EVs provided through a novated lease arrangement.