Novated lease vs chattel mortgage – which one is for you?

Novated lease and chattel mortgage are two different options individual customers and businesses can look into if they’re planning to acquire a vehicle. Each has their own advantages and payment schemes one should take into consideration.

For businesses, it’s important to understand how each option can affect the company’s balance sheet, tax liabilities, tax exemptions, vehicle ownership, and cash flow.

What is a novated lease

In a novated lease, an agreement between an employee, their employer, and a vehicle lease company is forged, allowing an employee to lease a vehicle through their employer. Payments are made by the employer who later deducts the amount from the employee’s pre-tax income. Usually, no additional cost is incurred by the employer since the lease company does all the paperwork needed for the contract.

Many companies offer this instead of buying a fleet of cars. They don’t own the cars but simply act as a conduit between their employees and the lease company. If an employee resigns or in any way becomes unaffiliated with their employer, the employee gets the vehicle along with all obligations formerly assumed by their employer under the agreement.

Vehicles acquired through novated lease as part of their employment benefits may be subject to fringe benefits tax (FBT), giving the purchasing employee tax savings. FBT is also deducted from pre-tax salary.

Types of Novated Lease

There are two major types of novated lease offered by companies. The employer has the prerogative which options to offer to their employees; some don’t even offer anything at all.


Under this option, all operating costs listed in the contract are included in the employee’s salary package. The employee will pay the costs of the following features:

  • Lease payments
  • Car registration
  • Comprehensive insurance
  • Maintenance services
  • Fuel and oil consumption
  • Tire replacement
  • Accident coverage
  • Other insurances
  • Fringe benefits tax

These are managed by the leasing company on your behalf.


The rental fee and any applicable tax are the only costs included in the package. This means a lesser amount is deducted from your pre-tax income but you have to pay for all the operating costs of the vehicle. These include insurance, fuel consumption, tire replacement, and maintenance.


Novated leases have several advantages which make this leasing option quite popular among small to medium-sized businesses. Many employees also go for this agreement to acquire their own car.


  • Provides major income tax savings. You get to enjoy lower tax rates in paying the lease compared to spending your post-tax income on running costs.
  • Lower repayments due to GST exclusion made possible by the leasing company thru Input Tax Credit (ITC) application.
  • May get discounts if the employer is acquiring a fleet of vehicles using the same scheme.
  • Since it’s not part of the company fleet, you get more flexibility in choosing which vehicle to acquire.
  • The vehicle is yours alone and your employer doesn’t have a say on how you use it.
  • You hold the contract and it can be brought to a new employer in case you become unaffiliated with your former employer.
  • Payments have a fixed rate for the duration of the lease.
  • Lease terms are flexible from 1 to 5 years.
  • More flexible lease residuals.
  • Offering salary packages under this type of leasing program is a way to raise the salaries of your employees without any significant cost to your business.
  • It can be an effective way to get company vehicles compared to acquiring and organizing a fleet of cars. There are no residual risks often present in owning a large volume of vehicles.
  • Employer doesn’t need to take responsibility for vehicle risks because they don’t own the cars.
  • Vehicles acquired through this process aren’t written on the balance sheet – they’re neither assets nor liabilities.
  • Make business through commissions and other service fees.


Leasing company



What is a chattel mortgage

In a chattel mortgage, a customer applies for a loan from a financing company to purchase a vehicle. The financier secures the loan and obtains the chattel on behalf of the customer. The customer then pays the mortgage fees, inclusive of the added interest rates, to the financier until the loan is fully repaid.

Ownership of the chattel is given to the customer from the time of acquisition. Once the loan is completely repaid, the customer receives complete rights to the vehicle, cleared from any security interest. Customers can then do what they want with the car like putting it in a trade-in for another model.

What makes chattel mortgage different from other lease options is that GST is only paid upon down payment. Regular monthly and “balloon” payments are excluded from GST.


Using the chattel for business purposes has its advantages which make chattel mortgage a popular vehicle acquisition option for businesses. Here are some of its benefits:

  • Mortgage terms are flexible from 1 to 5 years.
  • You can choose to pay a balloon payment to better manage the monthly dues you need to pay for.
  • Interest rates and monthly repayments are fixed, giving purchasers a good view of how much the loan will cost them each month in the upcoming years. This makes budgeting easier for customers.
  • Many financiers offer cash deposit or trade-in options on chattel mortgages.
  • Vehicles prepared for business use are candidates for tax deductions.
  • Monthly and balloon payments are exempted from GST.
  • Interests and depreciation values may be claimed for tax deductions and buyers can immediately claim the GST from the vehicle’s price tag.

To manage the monthly mortgage you need to pay, consider doing a balloon payment. Financiers may offer several payment schemes depending on the loan’s duration and the value of the mortgaged vehicle.

Which one to get

Novated lease is only applicable for salaried employees and businesses who want to put in salary packaging as part of the benefits of working for them. If you’re employed and you want to own a car for personal use, check if your employer is offering options for this type of vehicle lease. Novated leases can save you money because you get entitled to pre-tax payments.

A chattel mortgage doesn’t require customers to go through an employer to avail a vehicle. As long as they can shoulder the mortgage fees and the operating costs of the chattel, financiers can secure your loan.

Each of the discussed vehicle acquisition options offers different money-saving features like tax exemptions and minimized operating costs. It’s recommended to consult financiers or leasing companies to get a better idea which one will work best for you.

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