Chattel Mortgage vs Novated Lease for Business Vehicles
Most comparisons argue this on tax, which is the part that changes. The structural difference does not change, and it decides the answer for most people before tax is even discussed: a novated lease requires an employer, and a chattel mortgage puts the vehicle on your own balance sheet.
The short answer
A chattel mortgage is business finance: your business buys the vehicle, owns it from day one, and the lender takes security over it. A novated lease is an employee salary-packaging arrangement: it is a three-way agreement between you, your employer and a financier, and it requires an employer willing to enter it. That requirement settles the question for a lot of people immediately, because a sole trader with no employer cannot novate a lease to themselves. Where both are available, a chattel mortgage suits a vehicle genuinely used in the business and owned by it, while a novated lease suits an employee packaging a car through their salary. The tax treatment differs substantially and is the part most likely to change, so confirm it with your accountant rather than with a comparison page.
The question that settles it before tax
Before anyone argues about deductions, answer this: do you have an employer?
A novated lease is a three-way arrangement between an employee, that employee’s employer, and a financier. The employer takes on the obligation to make the lease payments and deducts them from the employee’s salary. No employer, no novation. That is not a policy preference, it is what the arrangement is.
So a sole trader operating under their own ABN, with no employment relationship, cannot novate a lease to themselves. A partner in a partnership generally cannot either. A contractor invoicing through their own entity usually cannot, unless that entity genuinely employs them and is willing to enter the arrangement. Where a company director is a genuine employee of their own company, novation can be possible, but that turns on the structure and on the employer’s willingness to administer it, which many small companies decline to do.
Most people comparing these two are not actually choosing between them. They are eligible for one.
If you have no employer, the comparison is over and the question becomes which form of business finance suits: a chattel mortgage, a lease, or a different structure again. Our asset finance page covers the range.
What each one actually is
Chattel mortgage
Your business buys the vehicle. You own it from the moment it is delivered, and it appears on your balance sheet as an asset with a corresponding liability. The lender takes security over the vehicle itself, registered on the Personal Property Securities Register, and releases it when the loan is paid out. Terms and any balloon or residual amount are set at the start. It is business finance for a business-owned asset, and the detail is on our chattel mortgage page.
Novated lease
You lease a vehicle, and your employer takes on the payment obligation, deducting it from your salary under a salary packaging arrangement. The financier owns the vehicle during the lease. It is typically your private car rather than a business vehicle, and a fully maintained arrangement bundles running costs such as registration, insurance, servicing and fuel into a single deduction.
The important point is whose arrangement it is. A novated lease is fundamentally an employee benefit administered by an employer. It is not business finance, it does not sit on a business balance sheet, and it is not something a business arranges for its own fleet. Fleet vehicles are a different question again, covered on our fleet finance page.
Side by side
| Chattel mortgage | Novated lease | |
|---|---|---|
| Who can use it | A business, including sole traders | An employee, with a willing employer |
| Who owns the vehicle | You, from delivery | The financier, during the lease |
| Whose money pays for it | The business | Your salary, deducted by your employer |
| Where it sits | On the business balance sheet, as asset and liability | Not on a business balance sheet |
| Business use required? | Deductions depend on business use, so records matter | No. It works for a purely private car |
| Running costs | Paid by you as they arise | Often bundled into the deduction on a fully maintained lease |
| At the end | You already own it. Any balloon is payable | Pay the residual, refinance, or hand it back per the agreement |
| If you change jobs | No effect. It is the business’s finance | The obligation reverts to you until a new employer novates it |
Read the fifth row carefully, because it is where the two products stop being comparable. A chattel mortgage produces business deductions to the extent the vehicle is used in the business, so a vehicle used mostly privately delivers little. A novated lease does not care about business use at all, because it is a way of paying for a private car out of pre-tax salary. They are answering different questions.
Not sure which applies to your situation?
Tell us your structure, whether you have an employer, what the vehicle is and how it will be used. Fifteen minutes and you will know which options are actually open to you and what each would look like. We will tell you when the question belongs with your accountant. No obligation, and no fee at any point.
The bit that matters if you are buying a house
This rarely appears in a comparison written by a vehicle financier, and for a broker it is the most useful thing on the page.
Both arrangements affect a future home loan application, and they do it differently.
A novated lease reduces your assessable income and shows as a commitment. The deduction comes out of your salary, so your take-home pay is lower and your payslip looks different. Lenders generally treat the packaged amount as a commitment rather than ignoring it, and they vary considerably in how they handle salary-packaged vehicles: some add the deduction back and count the lease as a liability, some assess on the reduced gross. If you are planning a home purchase, the treatment can move your borrowing capacity by a meaningful amount and it differs between lenders.
A chattel mortgage sits in the business. For a self-employed applicant the repayment is generally a business expense flowing through the financials, and lenders assess business income after it. That does not make it invisible, but it is treated through the business rather than as a personal commitment, and where the vehicle is genuinely productive the business income should reflect that.
The practical point is sequencing. If a home loan is on the horizon in the next year or two, work out what each option does to that application before you sign a four or five year vehicle agreement. It is far easier to choose the vehicle finance around the home loan than to unwind it afterwards. Our guide to how much you can realistically borrow covers how commitments are assessed.
The tax settings, and why we are not quoting them
Most comparisons of these two products lead with tax, and that is where they date fastest and get things wrong.
The broad shape is stable enough to describe. Under a chattel mortgage the business owns a depreciating asset, so depreciation and the interest component of repayments are generally deductible to the extent of business use, and a GST-registered business can generally claim an input tax credit on the purchase, subject to limits. Under a novated lease, payments come from pre-tax salary, which is where the benefit arises, and fringe benefits tax considerations apply to the employer.
What we are not going to do is publish the numbers. Three of the settings that decide this comparison are moving right now, and at least two are reported inconsistently across published sources.
- The instant asset write-off. The 2026-27 Federal Budget announced that the threshold would be made permanent for small businesses from 1 July 2026. Whether the enabling legislation has passed, what threshold applies in the meantime, and what the turnover test is have all been reported differently by different commentators. This is a question for your accountant against the ATO’s current published position, not for a broker’s website.
- The car limit. Depreciation and GST credits on passenger cars are capped at a limit set each income year, which matters because most cars cost well above the write-off threshold. Vehicles with a carrying capacity over one tonne are treated differently. Which category your vehicle falls into is a technical question with a large financial consequence.
- Electric vehicle FBT treatment. The exemption that has driven a great deal of novated lease activity is subject to announced changes, and published sources have given different commencement dates for them. If an EV novated lease is on your list, the timing question is real and it needs a current answer.
Confirm all of it with your accountant or registered tax agent against the ATO’s current guidance before you commit to either product. Intellect Finance provides credit assistance and is not a registered tax agent. If a finance provider is quoting you a tax saving as the reason to sign, ask them which of the three settings above their figure assumes, and then check it.
What happens if you leave the job
Worth its own section because it is the risk people discover late.
A novated lease is novated to a specific employer. If you leave, that employer’s obligation generally ends and the obligation reverts to you personally. You then either arrange for a new employer to novate the lease, which requires them to be willing and able to administer salary packaging, or you continue the payments yourself from after-tax income, which removes the benefit that made the arrangement attractive.
That is not a reason to avoid a novated lease. It is a reason to think about it honestly if your employment is short-term, contract-based, probationary, or in an industry where you move regularly. A chattel mortgage carries no equivalent exposure, because it belongs to the business rather than to an employment relationship.
Which one fits which situation
- Sole trader, no employer, vehicle used in the business. A novated lease is not available. Chattel mortgage or another business finance structure.
- Employee, private car, stable job, employer offers packaging. A novated lease is the arrangement built for this, and business use is irrelevant.
- Company director employed by their own company. Both may be possible, and the answer turns on structure, business use and what the company is willing to administer. Accountant territory.
- Ute, van or truck used in a trade. Chattel mortgage, and the vehicle’s carrying capacity matters to the tax treatment. See commercial vehicle finance.
- Employment is contract or short-term. Weigh the novated lease exposure carefully, because the arrangement follows you rather than the employer.
- Home loan planned within a year or two. Work out the serviceability impact of each before signing anything.
How Intellect Finance can help
Our part is the finance rather than the tax. We can tell you which structures are actually available given your entity and employment, what each looks like on rate, term and residual across a panel of more than 100 lenders, and importantly what each does to a home loan application if one is coming. Where the deciding factor is a tax question, we will say so and send you to your accountant rather than guess at it.
On the regulatory position: asset finance taken for a business purpose is not regulated consumer credit, so Best Interests Duty does not apply to it. Where a vehicle is financed predominantly for personal use it may be regulated consumer credit, and Best Interests Duty applies. Which regime covers your transaction depends on the predominant purpose, and we will tell you which applies to yours. We charge you nothing on any loan type, with no arrangement fee and no clawback recovery fee. Penrith based since 2005, holding Australian Credit Licence 390611. Passenger vehicle options are on our car loans page.
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These reviews reflect other clients’ experiences. They are not a promise of any particular outcome for your finance, which will always depend on your circumstances and the lender’s assessment.
Frequently Asked
Chattel mortgage vs novated lease FAQs
General information about how each works. Tax questions belong with your accountant.
What is the difference between a chattel mortgage and a novated lease?
A chattel mortgage is business finance: your business buys and owns the vehicle from delivery, and the lender takes security over it. A novated lease is an employee salary-packaging arrangement between you, your employer and a financier, where the employer takes on the payments and deducts them from your salary while the financier owns the vehicle. One puts an asset on your business balance sheet. The other pays for a private car out of pre-tax salary.
Can a sole trader get a novated lease?
Generally no. A novated lease requires an employment relationship, because the arrangement depends on an employer taking on the payment obligation and deducting it from salary. A sole trader operating under their own ABN has no employer to novate to. Where a company director is a genuine employee of their own company it can be possible, but it depends on the structure and on the company being willing to administer salary packaging. For most self-employed people the practical choice is between business finance structures.
Which is better for a business vehicle?
For a vehicle genuinely used in a business and owned by it, a chattel mortgage is the structure built for that purpose. A novated lease is not business finance and does not sit on a business balance sheet. The comparison is really between a business owning a working asset and an employee packaging a private car, which are different objectives. Which suits you depends on your entity, your employment and how the vehicle will actually be used.
Does business use percentage matter?
For a chattel mortgage, yes, considerably. Deductions generally depend on the extent of business use, so a vehicle used mostly privately delivers correspondingly less, and records matter. For a novated lease, business use is not the point at all: it is a way of paying for a car from pre-tax salary regardless of whether it is used for work. This is one of the clearest signs the two products are answering different questions.
What happens to a novated lease if I change jobs?
The lease is novated to a specific employer, so if you leave, that employer’s obligation generally ends and the obligation reverts to you personally. You then either find a new employer willing and able to novate it, or continue the payments from after-tax income, which removes the benefit. Worth weighing carefully if your employment is contract-based, probationary or in an industry where you move often. A chattel mortgage has no equivalent exposure because it belongs to the business.
Will either affect my home loan application?
Both do, differently. A novated lease reduces your take-home pay and generally shows as a commitment, and lenders vary considerably in how they treat salary-packaged vehicles, some adding the deduction back and counting the lease as a liability. A chattel mortgage usually flows through the business financials and is assessed there. If a home purchase is likely within a year or two, work out the effect of each before signing a multi-year vehicle agreement, because it is much easier to sequence than to unwind.
What are the tax benefits of each?
Broadly, a chattel mortgage lets a business claim depreciation and the interest component of repayments to the extent of business use, and a GST-registered business can generally claim an input tax credit on the purchase, subject to limits. A novated lease delivers its benefit by having payments come from pre-tax salary, with fringe benefits tax considerations for the employer. We do not publish the specific thresholds because several are currently changing and are reported inconsistently, including the instant asset write-off, the car limit and electric vehicle FBT treatment. Confirm current figures with your accountant against ATO guidance.
Does Best Interests Duty apply to vehicle finance?
It depends on the purpose. Asset finance taken for a business purpose is not regulated consumer credit, so Best Interests Duty does not apply. Where a vehicle is financed predominantly for personal use it may be regulated consumer credit and the duty applies. Which regime covers your transaction depends on the predominant purpose, and your broker should tell you which applies to yours. Intellect Finance charges you nothing on any loan type, with no clawback recovery fee.
The bottom line
Answer the employment question first and the comparison usually resolves itself. No employer means no novated lease, and the decision becomes which business finance structure suits. An employee packaging a private car is in the arrangement novated leases were built for, and business use is beside the point.
Where both are genuinely available, the deciding factors are whether the vehicle is a business asset or a private car, how secure the employment is, and what each does to a home loan you may want within the term. Treat the tax comparison as the last input rather than the first, because it is the part most likely to have changed since whatever you read about it, and it is the part your accountant is licensed to answer.
Joseph Sukkar
Joe founded Intellect Finance in Penrith in 2005 and has more than 25 years in Australian finance. The firm arranges asset and vehicle finance alongside residential and commercial lending, which means the interaction between a vehicle agreement and a future home loan is a conversation the practice has regularly. Intellect Finance is not a registered tax agent and charges clients no fee on any loan type. More about the team.
Sources
Australian Taxation Office, guidance on depreciating assets and simplified depreciation, the car limit for depreciation and GST credits, and fringe benefits tax including the electric cars exemption. Thresholds are set per income year and several are subject to announced change. ato.gov.au
A note on why this page quotes no thresholds. At the time of writing the instant asset write-off position following the 2026-27 Federal Budget, and the commencement of announced changes to electric vehicle fringe benefits tax treatment, were reported inconsistently across published sources, and announced measures are subject to passage through Parliament. Publishing a figure we could not stand behind would be worse than publishing none. Confirm the current position with your accountant or registered tax agent.
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, taxation or legal advice. It does not take your circumstances into account and is not a recommendation to use either product.
This is not tax advice, and tax is the deciding factor for many readers. Deductibility, depreciation, GST input tax credits, the instant asset write-off, the car limit, fringe benefits tax and the treatment of salary packaging are matters for your accountant or registered tax agent. Intellect Finance provides credit assistance and is not a registered tax agent. The general descriptions here are simplified, are not a complete statement of the law, and do not address every requirement or exception.
Tax settings are changing and are reported inconsistently. This page deliberately publishes no thresholds, rates or dollar limits. Announced measures are subject to legislation and may change or not proceed, and commentary on their status has differed between sources. Confirm the current position directly with the ATO or your accountant before committing to either product. Do not rely on a tax figure quoted by a finance provider without checking it.
Salary packaging is an employer arrangement. Whether a novated lease is available depends on your employer offering and administering salary packaging, and on the terms of the specific arrangement. If employment ends, the obligation generally reverts to the employee. Read the lease and packaging documents, and obtain advice on your own position.
Best Interests Duty. Asset finance taken for a business purpose is not regulated consumer credit under the National Consumer Credit Protection Act 2009 and Best Interests Duty does not apply to it. Where a vehicle is financed predominantly for personal use the transaction may be regulated consumer credit and the duty applies. The applicable regime depends on the predominant purpose of the finance.
Lender policy varies and changes. Availability, terms, residual and balloon requirements, security arrangements and how salary-packaged vehicles are treated in a home loan assessment are set by individual lenders, differ substantially between them, and change without notice. This page publishes no interest rates and names no lenders or financiers. No broker can guarantee approval, pricing or a timeframe.
What we charge you. Nothing, on any loan type. No arrangement fee for residential, commercial, corporate, asset, SMSF or personal lending, no fee for complex or specialist lending, and no clawback recovery fee if a facility is discharged early. Lenders pay us a commission on settlement, disclosed to you in writing in our Credit Guide before we provide credit assistance.
About the reviews shown. The reviews displayed on this page are genuine reviews published by clients on Intellect Finance’s Google Business Profile, shown live via a third-party reviews widget. They reflect those individuals’ own experiences and are not a promise of any particular outcome.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees and terms apply. Article checked 7 September 2026.
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Tell us your entity, whether you have an employer, the vehicle and how it will be used. We will tell you which structures apply, what each looks like across a panel of more than 100 lenders, and what it does to a home loan if one is coming in the next couple of years. Where the deciding factor is tax, we will send you to your accountant rather than guess. Penrith based since 2005. No fee on any loan type. ACL 390611.
General information only, not tax or financial advice. This page publishes no tax thresholds. Confirm current settings with your accountant or registered tax agent. No broker can guarantee approval.
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