Budget 2025: New Tax Cuts and What They Mean for Your Novated Lease
The Albanese Government's new $250 Working Australians Tax Offset and $1,000 instant deduction are live. Here's how they interact with novated leasing.
The Federal Budget handed down on 12 May 2026 includes two new measures aimed squarely at PAYG workers: a $250 Working Australians Tax Offset (permanent, from 2027–28) and a $1,000 Instant Tax Deduction for work-related costs (from 2026–27). According to the Treasury Ministers' announcement [Source 1], the Government says the average worker could receive a combined benefit of up to $2,816 from 2027–28 when stacked with existing tax relief.
These are genuine, legislated changes — not election promises. They reduce the income tax you pay, which is the same pool of money that novated leasing draws on to generate its savings. So yes, they're relevant to anyone currently in — or thinking about — a novated lease.
What this means for novated lease customers
Novated leasing works by redirecting pre-tax salary to cover your car's running costs, reducing your taxable income. When the Government also cuts your income tax rate or adds an offset, the two measures stack — you get the tax cut and you keep the pre-tax benefit of the lease.
The $1,000 Instant Tax Deduction [Source 1] is worth watching closely. It covers work-related costs, and the Government has signalled it is designed to replace the need to itemise many standard deductions. If your existing work-related deduction claims were modest, this flat deduction could actually be simpler — and it does not affect the FBT treatment of your novated lease, which runs through a separate mechanism entirely.
For EV drivers on a novated lease, the existing FBT exemption for eligible battery electric vehicles remains in place and is unaffected by these Budget measures. The combination of the EV FBT exemption plus the new income tax offset represents a meaningful potential saving — but the exact number depends on your salary, vehicle choice, and kilometres. Use the millarX calculator for a personalised figure rather than taking any industry headline number at face value.
Common questions
Does the $250 Working Australians Tax Offset apply automatically?
According to the Treasury announcement [Source 1], it applies to every working Australian taxpayer from 2027–28. You don't need to do anything — it flows through your tax return or PAYG withholding adjustments.
Will the $1,000 Instant Tax Deduction replace my work-related expense claims?
It's designed as a flat deduction from 2026–27 to simplify the process. If your actual work-related expenses exceed $1,000, you can still claim the higher amount. Speak to your accountant about which approach suits your situation.
Does any of this change the FBT treatment of my novated lease?
No. FBT is a separate tax paid by your employer (and recovered from you via salary packaging). The income tax changes in this Budget do not alter FBT rates, the FBT exemption for eligible EVs, or how novated leases are structured.
I'm thinking about an EV on a novated lease — is this a good time?
The EV FBT exemption is still in force for eligible battery electric vehicles, and these new income tax cuts add to the overall after-tax position. Whether it's the right time for you depends on your income, the vehicle, and when legislation is finalised — get a quote to see actual numbers.
Are these tax cuts confirmed or still a Budget proposal?
They were announced as Budget measures on 12 May 2026 [Source 1]. Legislation still needs to pass Parliament, so check the ATO website for confirmation of commencement dates before making financial decisions.