The short version
Chattel mortgage vs novated lease comes down to one thing: who pays for the car. Your business, or you out of your salary. A chattel mortgage is a business loan to buy a car. Your business owns the car from day one. Many lenders call it a "business car loan".
A novated lease is a car lease paid out of your salary, mostly before tax. It's an agreement between you, your employer and a finance company.
- If your business is buying the car, or you're a sole trader, look at a chattel mortgage.
- If you're paid a wage, by an employer or by your own company, a novated lease is worth comparing.
Electric cars can be free of fringe benefits tax (FBT) on a novated lease right now. The government plans to cut that back from 1 April 2027. It isn't law yet, so check with your accountant before you sign.
Plenty of business owners take whatever the dealer's finance desk offers on the day. That's often a chattel mortgage. It can be the right choice, but not always.
These are two common ways to pay for a car through work. Hire purchase and other leases are options too. Our guide to the main asset finance structures covers them all.
What is a chattel mortgage?
A chattel mortgage is a loan your business uses to buy a vehicle. Your business owns the vehicle, and the lender holds it as security until the loan is paid off. If you're registered for GST, you can usually claim the GST on your next BAS. It doesn't matter if you report GST on a cash or accruals basis. Private use can reduce the claim or bring in FBT. For more on how the GST and depreciation work, see chattel mortgage vs operating lease.
Cars have caps on what you can claim. For a car you first use in 2026-27, you can only depreciate it up to the $69,883 car limit. The most GST you can claim on it is $6,353. We explain the caps in buying a luxury car through your business. Check with your accountant.
Is a business car loan the same as a chattel mortgage?
Mostly, yes. Many lenders use "business car loan" as another name for a chattel mortgage. A "secured car loan" works the same way, though the name usually means a loan for personal use. Either way, you own the car and the lender registers its interest on the PPSR. That's the government register of who has a claim over an asset.
The name doesn't change the tax. Tax depends on who owns the car and how it's used. So read the contract, not the name on the brochure.
The purpose of the loan is what counts. If an individual borrows mainly for personal use, it's consumer credit. The lender must then check the loan suits them and that they can afford it. A company, or a sole trader borrowing mainly for business, falls outside those rules. Loans for personal use aren't covered in this guide.
What is a novated lease?
A novated lease is a car lease between you, your employer and a finance company. The finance company buys the car and owns it during the lease. Your employer makes the payments out of your salary, mostly before tax. That lowers the income you pay tax on.
You need an employer to get one. A sole trader or a partner in a partnership can't use their own business for this. If you run your business through a company, it may be able to offer you one. We cover that below.
Most novated leases are for cars and light utes. A vehicle that can carry 1 tonne or more is taxed differently for FBT, and many providers won't lease one.
A novated lease comes with FBT. Most people bring it down to nil by paying part of the lease from their after-tax pay. That part is usually 20% of the car's cost each year. On a $65,000 car, that's about $13,000 a year.
Electric cars are the exception, for now. A battery electric or hydrogen fuel-cell car is FBT-free on a novated lease if it meets both of these:
- It was first bought and driven on or after 1 July 2022 (the ATO calls this "first held and used").
- Luxury car tax has never been payable on it. For a car first sold in 2026-27, that means a price under $91,661.
The benefit still shows on your income statement from your employer. Plug-in hybrids stopped qualifying from 1 April 2025. The only exception is one that was already being used FBT-free before then, under a lease that hasn't changed since.
At the end of the lease, a residual payment is due. You can pay it and keep the car, refinance it, or sell the car to cover it. Check the tax side with your accountant.
Chattel mortgage vs novated lease: side by side
| Chattel mortgage | Novated lease | |
|---|---|---|
| Who owns the car | Your business, from day one | The finance company. A residual payment is due at the end |
| Can a business owner get one? | Yes, in any business structure | Yes, if your own company or trust pays you a wage. Not as a sole trader or partner |
| Which vehicles | Cars, utes, vans and trucks used mainly for business | Usually cars and light utes (provider rules vary) |
| GST | Usually claimed on the next BAS, cash or accruals. Capped at $6,353 for cars in 2026-27 | You don't claim it. The finance company and your employer do |
| Main tax benefit | Interest and depreciation deductions | Payments come mostly from your pre-tax salary |
| FBT | Only if an employee or director uses it privately | Applies, but most people bring it to nil with after-tax payments. Eligible EVs are exempt for now |
Can I get a novated lease through my own company?
Yes, if your company employs you. For FBT, a company director counts as an employee. So does a beneficiary of a trust who works in the business. The ATO says a sole trader or a partner in a partnership isn't an employee.
To do it, your company pays you a wage through payroll and agrees to salary package a car. You, your company and a finance company sign the lease. Your company makes the payments out of your pre-tax wage. It can usually claim the GST on the lease payments, and it pays any FBT.
This suits a car you drive privately. If the car is mostly a work vehicle, your company can buy it on a chattel mortgage instead. Your accountant can tell you which works out better.
What's planned for electric cars from 1 April 2027
The government plans to cut back the FBT exemption for electric cars. It announced the change in the May 2026 Budget, and Treasury released draft law in September 2026. As at October 2026, it isn't law yet.
Under the plan:
- Until 31 March 2027, nothing changes. Eligible EVs stay fully FBT-free.
- From 1 April 2027, EVs costing $75,000 or less stay fully FBT-free. EVs costing more than $75,000, but under the luxury car tax threshold, get a 25% FBT discount instead.
- From 1 April 2029, new leases on all eligible EVs get the 25% discount.
- Leases signed before 1 April 2027 keep the current rules until they end. Changing the lease, such as its term or residual, can count as a new lease.
If you're weighing up a dearer EV on a novated lease, the start date matters. Check where the law stands, and talk to your accountant, before you sign.
Which one suits you
A business that wants to own the vehicle usually picks a chattel mortgage or hire purchase. Both let it claim the GST now and depreciate the vehicle. A novated lease is a way to pay for a car through your salary.
A chattel mortgage usually fits when:
- Your company or trust is buying a ute or van for work. A novated lease isn't an option for the business's own vehicle. If staff use the ute privately, FBT may apply, unless the exemption for utes and vans with limited private use fits. Our guide to what a work ute costs per week runs the numbers.
- You're a sole trader and the vehicle is mainly for work. You have no employer, so a novated lease is out.
A novated lease is worth comparing when:
- You're paid a wage and your employer, or your own company, offers salary packaging. It often works out better than buying the car with after-tax money, especially on a middle to high income.
- You want an electric car under the luxury car tax threshold. Under the current rules it pays no FBT, but the planned changes above could affect a dearer EV.
A novated lease usually isn't an option for a truck or a heavy van. For those, see our guide to truck finance.
Check with your accountant before you choose.
A worked example
Say you're a landscaper and you trade as a sole trader. You're registered for GST. You buy a dual-cab ute on a chattel mortgage. It costs $65,000 including GST, before stamp duty and rego. You use it 90% for work.
- The GST in the price is $5,909. That's 1/11 of $65,000.
- You can claim 90% of it, about $5,318, on your next BAS.
- You can also claim 90% of the depreciation and 90% of the loan interest.
What about a novated lease on the same ute? As a sole trader, you can't get one, because you have no employer. If you ran the business through a company and paid yourself a wage, your company could offer you one. But a novated lease is mostly used for a car you drive privately. For a ute that's 90% work, a chattel mortgage is the usual fit.
Your accountant will confirm the exact figures.
How long each one takes
From the deals we arrange, a chattel mortgage typically settles in 2 to 5 business days once the documents are signed. A novated lease usually takes 1 to 3 weeks. That's because your employer's payroll and the salary packaging provider are involved, as well as the finance company.
Talk to us
We arrange both chattel mortgages and novated leases. We compare lenders and find the one that fits your business and your car. See how our business vehicle finance works, or send us the details and we'll come back with real numbers. It takes under a minute. All finance is subject to lender approval.
A quick note: this is general information, based on how we've financed these cars for business owners. It isn't tax or financial advice, and everyone's situation is different. Sort out the right structure with your accountant first, then talk to a broker about the finance.
Sources
- Car thresholds from 1 July (ATO)
- Purchasing a motor vehicle (ATO)
- Financial services questions and answers: chattel mortgages and GST (ATO)
- How fringe benefits tax works (ATO)
- Car leasing and FBT (ATO)
- Taxable value of a car fringe benefit (ATO)
- Exempt use of eligible vehicles (ATO)
- Electric cars exemption (ATO)
- FBT on plug-in hybrid electric vehicles (ATO)
- Electric car discount: more sustainable FBT treatment of electric cars (ATO)
- Sustainable fringe benefits tax treatment of electric cars (Treasury)
- Salary packaging (Moneysmart)
- National Credit Code (ASIC)