A straightforward comparison of novated lease vs chattel mortgage in Australia: who qualifies for each, how the tax and GST treatment works, and which one suits you, with South East Queensland examples.
A novated lease and a chattel mortgage are different products for different people. A novated lease is a salary-packaging arrangement for employees, where your employer deducts car payments from your pre-tax salary. A chattel mortgage is a business loan for ABN holders, where you own the vehicle immediately and claim business tax deductions. The right choice depends on whether you are an employee or a business owner.
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The short answer: a novated lease is for employees. A chattel mortgage is for business owners. They are different products, and choosing the wrong one can cost you the tax benefit you were after, or leave you ineligible altogether.
This guide compares them side by side, with the tax and GST treatment and examples from Brisbane, the Gold Coast and the Sunshine Coast.
| Feature | Novated Lease | Chattel Mortgage |
|---|---|---|
| Who qualifies | PAYG employees | ABN holders / businesses |
| Ownership during term | Finance company owns | You own from day one |
| Tax benefit | Pre-tax salary deductions | Business deductions (interest, depreciation, running costs) |
| GST treatment | GST saving built into lease pricing | GST-registered businesses claim it on the next BAS |
| Running costs | Often bundled into one payment | Separate from finance, claimed individually |
| Employer involvement | Required. Your employer must agree to salary package | None |
| FBT | Applies; usually reduced with post-tax contributions | Only if an employee has private use |
| End of term | Pay the residual, refinance, or return the vehicle | Pay off the loan and the vehicle is yours outright |
| Portability | Can move to a new employer | Not tied to any employer |
A novated lease is a three-way agreement between you (the employee), your employer, and a finance company. Your employer agrees to deduct lease payments from your salary before income tax is calculated. That lowers your taxable income, so you pay less income tax.
The "novation" means your employer takes on the obligation to make the lease payments on your behalf and deducts them from your pay. If you leave the job, the obligation comes back to you, and a new employer can take it on.
A novated lease works best if:
Across South East Queensland, salary packaging is common in hospitals, universities, councils and large corporate employers. If yours offers it, ask payroll for the provider they use and get a personalised quote.
Take an employee in Brisbane earning in the 30% bracket. Every $1,000 of car costs paid from pre-tax salary instead of after-tax income reduces their income tax by $300, before the Medicare levy and before FBT. In the 37% bracket the same $1,000 saves $370.
That is the mechanism. How much it is worth to you depends on your salary, the vehicle, the lease structure and FBT, so always get a personalised quote that shows the after-FBT figure.
A chattel mortgage is a business loan secured against the vehicle. You own the vehicle from day one. The lender registers a security interest on the PPSR (Personal Property Securities Register), which is removed once the loan is paid off. It is one of the most common ways to finance a business vehicle in Australia.
A chattel mortgage fits if:
For tradies, contractors, couriers and other SEQ businesses, a chattel mortgage is often the default. See our ABN car finance page for how we arrange it for sole traders and the self-employed.
A Gold Coast electrician buys a work ute for $66,000 including GST on a chattel mortgage. Her business is GST-registered.
A ute with a payload of one tonne or more is not a "car" for the ATO car limit, so the limit ($69,674 for 2025-26) does not cap her depreciation. Her accountant confirms the exact deductions.
For more on business structures, see our chattel mortgage vs hire purchase guide.
Your employer deducts lease payments before your income tax is calculated. The saving tracks your marginal rate:
| Taxable income | Marginal rate (ATO, residents 2025-26) | Tax saved per $1,000 pre-tax deduction |
|---|---|---|
| $18,201 - $45,000 | 16% | $160 |
| $45,001 - $135,000 | 30% | $300 |
| $135,001 - $190,000 | 37% | $370 |
| $190,001+ | 45% | $450 |
Figures exclude the Medicare levy and FBT. The higher your income, the more a novated lease can save.
You claim interest, depreciation and running costs as business deductions. If GST-registered, you also claim the GST on the purchase price:
The finance company buys the vehicle and claims the GST, and the saving is passed to you as a lower lease cost. In effect you pay the ex-GST price, but you never see it as a refund. It is built into the payments.
If your business is GST-registered, you claim the GST as an input tax credit on your next BAS. On a $66,000 vehicle including GST, that is $6,000 back in your next BAS period. For a business that needs working capital, that timing matters.
Not GST-registered? You cannot claim the GST with either product. It is simply part of the vehicle cost.
Most novated lease providers bundle running costs into your regular deduction: fuel, insurance, registration, servicing, tyres and roadside assistance. It is convenient, but the estimates are averages. Drive more than expected and you may need to top up.
The loan covers the vehicle only. You pay running costs yourself and claim them as business deductions. That gives you control, but you need receipts and a logbook for your business-use percentage. Most business owners already keep these for tax.
A nurse at a Brisbane hospital earns in the 37% bracket, and her employer offers salary packaging. She wants an SUV for commuting and family use.
Why a novated lease fits:
A sole-trader plumber on the Sunshine Coast is GST-registered and needs a ute for work.
Why a chattel mortgage fits:
An employee in Logan earns in the 30% bracket. Her employer offers salary packaging, and she wants a small SUV.
The numbers are tighter:
Key takeaway: novated leases deliver the most for employees in the higher tax brackets. Lower down, FBT can take a large share of the benefit.
A GST-registered landscaping business needs two utes for its crews.
Why a chattel mortgage fits:
When your employer provides a car through salary packaging, the ATO treats it as a fringe benefit. The FBT rate is 47%. The Employee Contribution Method (ECM) reduces or removes the FBT by having you contribute post-tax dollars, which is why most providers split payments between pre-tax and post-tax. The net effect is that your saving is smaller than the pre-tax deduction alone suggests.
Eligible electric vehicles are FBT-exempt. A zero or low emissions car first held and used on or after 1 July 2022, and priced below the luxury car tax threshold for fuel-efficient vehicles, can qualify. Plug-in hybrids stopped qualifying for new arrangements from 1 April 2025. Removing FBT is why EV novated leases are popular in SEQ, where public charging is easier to find than in much of regional Queensland.
With a chattel mortgage, FBT only applies if the vehicle is available for an employee's private use (including a working director). Sole traders and partners apportion expenses by business-use percentage instead.
Not easily, and generally not at all.
The exception: an employee with a side business could have a novated lease on a personal car and a chattel mortgage on a work vehicle. That is uncommon and worth discussing with a broker and your accountant.
There is no universal answer. It depends on:
| Factor | Favours Novated Lease | Favours Chattel Mortgage |
|---|---|---|
| Employment status | Employee (PAYG) | Business owner (ABN) |
| Income level | Higher bracket = bigger saving | Higher turnover = more use of deductions |
| GST registration | N/A (handled in lease) | GST-registered = GST credit on BAS |
| Vehicle type | Any vehicle; eligible EVs avoid FBT | Commercial vehicles escape the car limit |
| Employer support | Employer offers salary packaging | N/A |
| Running costs | Want bundled simplicity | Want control |
| Ownership | Happy not to own during the term | Want ownership from day one |
Rule of thumb:
A novated lease is for PAYG employees: your employer deducts car payments from your pre-tax salary, which lowers your taxable income. A chattel mortgage is for ABN holders: you take a business loan, own the vehicle from day one, and claim interest, depreciation and, if GST-registered, the GST. Which one fits depends on whether you are an employee or a business owner.
No. A novated lease needs an employer-employee relationship. As a sole trader your options are a chattel mortgage, hire purchase or a standard car loan. See our car finance page for how we compare them.
Not directly. The finance company claims the GST when it buys the vehicle and passes the saving to you through lower lease costs. You do not receive a refund. With a chattel mortgage, a GST-registered business claims the GST on its next BAS.
The obligation comes back to you. A new employer can agree to take on the novation, or you make the payments directly until one does.
No. A chattel mortgage needs an ABN and business use. For a purely personal vehicle, look at a personal car loan, or a novated lease if your employer offers salary packaging. If the vehicle is partly for business, deductions follow your business-use percentage.
Comparing interest rates alone is misleading. The total cost depends on the tax saving, FBT, GST, running costs and your circumstances. Ask for the total cost of each option in writing, with the comparison rate for any loan.
If your employer offers salary packaging and the EV meets the FBT exemption conditions, removing FBT takes away the biggest cost of a novated lease. Check eligibility with your provider and your employer before you choose the car.
Yes, if you are an employee with a side business that has its own ABN: a novated lease on your personal car through your employer, and a chattel mortgage on a work vehicle through your business. Talk to your accountant about how that works for you.
Whether you are an employee looking at salary packaging or a business owner weighing up finance, the right structure matters more than the headline rate.
We are paid a commission by the lender when a loan settles, so there is no broker fee to you for finance. Approval depends on the lender's assessment of your situation.
This guide is general information only. It does not consider your objectives, financial situation or needs, and it is not financial, tax or legal advice. Tax, FBT and finance rules change, so check with a registered tax agent or accountant before deciding. Information is current as of October 2026.
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