Quick answer
A novated lease is a salary-packaging arrangement: an employee leases a car and their employer makes the payments from pre-tax pay. A chattel mortgage is a business loan where the business buys and owns the vehicle. Novated leases suit owners paid a salary by their own company, especially for eligible electric cars. Chattel mortgages suit sole traders, partnerships and any business buying a work vehicle it will own and claim directly.
Key points
- A novated lease needs an employer; sole traders and partners can't use one for themselves
- A chattel mortgage puts the vehicle on the business's books, with GST, depreciation and interest claimed by the business
- The EV fringe benefits tax exemption stays in full until 31 March 2027, then narrows in stages
- Plug-in hybrids lost the exemption from 1 April 2025, apart from existing arrangements
- Utes and vans built to carry a tonne or more are often better on a chattel mortgage
- Novated lease borrower
- An employee, with the employer paying
- Chattel mortgage borrower
- The business
- 2026–27 car limit
- $69,883 (GST credit capped at $6,353)
- 2026–27 LCT threshold, fuel-efficient
- $91,661
Most comparisons of these two products start with cost. For business owners, that’s the second question. The first is simpler: who is actually buying the car, and who is paying for it?
A novated lease only exists because there’s an employer in the picture. A chattel mortgage only works because a business is the buyer. Work out which of those describes you, and half the decision is made before a single quote arrives.
Which one can you actually use?
| Your set-up | Novated lease | Chattel mortgage |
|---|---|---|
| Sole trader | Not for yourself (no employer) | Yes |
| Partnership | Not for the partners themselves | Yes, the partnership buys |
| Company, owner paid wages through payroll | Yes, with the company as employer | Yes, the company buys |
| Company, owner paid only by dividends | Harder; usually needs a salary arrangement | Yes |
| Your employees | Yes, if you offer salary packaging | Only if the business buys the car for them |
If you’re a sole trader or partner, the comparison ends here: a chattel mortgage or another form of business car finance is the route. Owners running a company with payroll have a real choice, and the rest of this page is for them.
How each one works, side by side
| Novated lease | Chattel mortgage | |
|---|---|---|
| Who owns the car | The financier during the lease | The business, from settlement |
| Who signs | Employee, employer and financier (three parties) | The business, often with a director guarantee |
| How it’s paid | Deducted from the employee’s pay, partly pre-tax | Business repayments, monthly |
| GST on the price | Employer generally claims it and the lease is priced on the GST-exclusive amount | Business claims it on the next BAS, capped for cars |
| Running costs | Fuel, servicing, rego and insurance can be bundled into the package | Paid by the business as normal expenses |
| Fringe benefits tax | Applies to private use, unless an exemption such as the EV one applies | Applies if the business lets an employee or director use the car privately |
| End of term | Pay a residual, refinance it, or trade in | Pay the balloon if there is one; the car is already yours |
| If you leave the job | Lease generally reverts to you personally | Not relevant; the business owns it |
One detail people miss: the EV fringe benefits exemption isn’t exclusive to novated leases. If your company buys an eligible electric car on a chattel mortgage and provides it to you as an employee, the same exemption can apply. The novated lease is simply the most common way it’s delivered.
What’s changing for electric cars?
This is where most of the money sits, so the dates matter.
- Now until 31 March 2027: eligible zero-emission cars under the luxury car tax threshold for fuel-efficient vehicles ($91,661 in 2026–27) remain fully exempt from fringe benefits tax, provided they were first held and used on or after 1 July 2022.
- From 1 April 2027: under changes announced by the Treasurer on 5 May 2026, the full exemption applies only to electric cars costing $75,000 or less. Cars between $75,000 and the threshold get a 25 per cent reduction in the FBT otherwise payable.
- From 1 April 2029: the full exemption ends, and eligible electric cars under the threshold get the 25 per cent reduction only.
- Existing arrangements: the government said these won’t be affected. Draft legislation was released in September 2026, so confirm the final law before signing.
- Plug-in hybrids: these stopped qualifying from 1 April 2025, except where a binding commitment to keep providing the car existed before then.
Exempt car benefits still count as reportable fringe benefits on the employee’s income statement, which can affect things like the Medicare levy surcharge. That’s a small point for most owners, but worth knowing before you assume the benefit is completely invisible.
When does a novated lease win?
- The car is an eligible EV, ideally priced at $75,000 or less. For a salaried owner-director, that’s where novated leases are hardest to beat.
- You want running costs bundled. A single deduction from pay covering finance, fuel or charging, tyres, servicing and rego is tidy.
- The car is mostly private. A family SUV with modest work use doesn’t sit naturally on the business’s books.
- You offer it to staff. Salary packaging is a cheap retention tool for the business, since the employee carries the lease.
Thinking about a vehicle for the business? Send us the details; it’s a short form, and making an enquiry is never treated as a credit application.
When does a chattel mortgage win?
- It’s a work vehicle. A dual-cab ute or van that spends its life on jobs belongs to the business, and a chattel mortgage keeps it there.
- The vehicle carries a tonne or more. Utes and vans designed to carry one tonne or more, or nine or more passengers, aren’t cars for the car limit, so the business can claim depreciation and GST on the full price instead of the capped amount.
- You’re a sole trader or partner. There’s no alternative structure here.
- You want to own it. No residual to refinance, no unwinding if circumstances change.
- You want the instant asset write-off. Owned assets can qualify for the $20,000 per-asset write-off where the business is eligible; a lease generally can’t.
For petrol and diesel cars driven privately by a director, FBT can apply whether the car is novated or owned by the company, so the comparison usually comes down to bundling and convenience, not tax.
An example: two owners, two answers
Mia runs a physio practice through a company and pays herself a salary. She wants a $62k electric hatchback, mostly for private use. A novated lease through her company, signed before April 2027, can use the full exemption, and running costs come out of her pre-tax pay. The novated lease is the strong candidate here.
Dan is a sole trader electrician buying a $58k dual-cab ute that does 90 per cent work kilometres. He can’t novate, and the ute is a commercial vehicle in any case. A chattel mortgage lets him claim the GST on the price, and interest and depreciation for business use. The chattel mortgage is the clear answer.
Use the equipment finance calculator to rough out repayments, and our chattel mortgage vs finance lease comparison if you’re also weighing a lease the business holds directly.
Ready to finance the vehicle?
A lot of owners land here halfway through a car purchase, with a dealer quote in one hand and a question about tax in the other. Where the business is the buyer, we can help line up the finance. The enquiry is brief, about a minute from start to finish, and your credit report stays exactly as it was. Nothing gets broadcast to a panel of lenders either: one of our team reads what you’ve sent and picks up the phone. Give us the real vehicle, price and business details, and the first option we put forward should be the one that fits.
Frequently asked questions
Can a sole trader get a novated lease?
Not for themselves. A novated lease is a three-way agreement between an employee, their employer and a financier, and a sole trader has no employer. Sole traders usually buy work vehicles through a chattel mortgage or another form of business vehicle finance.
Can a company director get a novated lease through their own company?
Generally yes, if the director is an employee of the company and paid a salary through payroll. The company becomes the employer party to the novation. Talk to your accountant about how it interacts with your remuneration, because it changes what the company pays and reports.
Is a novated lease cheaper than a chattel mortgage?
It depends on the car and the owner. For an eligible electric car, the fringe benefits tax exemption can make a novated lease very efficient for a salaried owner. For a petrol ute used mostly for work, a chattel mortgage through the business is often simpler and claims the same costs directly.
What happens to a novated lease if I leave my job?
The lease usually reverts to you as an individual, and you keep paying it from after-tax income unless a new employer agrees to take it on. For a director of their own company this risk is lower, but it applies if the company is sold or closed.
Will the EV exemption changes affect a lease I already have?
The government has said existing arrangements won't be affected. The changes announced on 5 May 2026 apply to new arrangements from 1 April 2027, with draft legislation released in September 2026. Check the final law before relying on it for a new car.
Do I own the car under a chattel mortgage?
Yes. The business owns the vehicle from settlement and the financier registers its security on the PPSR until the loan is repaid. A balloon payment, if you choose one, is due at the end of the term.