Quick answer
A novated lease is a salary packaging arrangement between an employer, an employee and a financier, where the employer makes lease payments from the employee's pay. A business-owned vehicle is bought or leased by the business itself through a chattel mortgage, finance lease or hire purchase. Which suits depends on who drives the vehicle, how it's used and the tax effects — your accountant should advise.
Key points
- A novated lease involves three parties: employer, employee and financier.
- A business-owned vehicle is financed by the business and sits with the business.
- Fringe benefits tax applies differently depending on the vehicle and arrangement.
- Work vehicles like utes and vans are usually owned or leased by the business.
- Novated lease parties
- Employer, employee, financier
- Business-owned structures
- Chattel mortgage, finance lease, hire purchase
- Key tax issue
- Fringe benefits tax — ask your accountant
- Our focus
- Business-owned and business-leased vehicles
“Should we just do a novated lease?” is a question that comes up whenever a business provides a car to someone who’ll also drive it on weekends. Novated leases and business-owned vehicles both get vehicles on the road, but they work very differently. This page explains the mechanics so you can have a better conversation with your accountant.
What is a novated lease?
A novated lease is a salary packaging arrangement with three parties:
- The employee chooses a vehicle and enters into a lease with a financier.
- The employer agrees to make the lease payments (and often running costs) on the employee’s behalf, from the employee’s salary package.
- The financier owns the vehicle and receives the payments.
The “novation” part means the employer takes on the employee’s obligations under the lease while the employee works there. If the employee leaves, the obligations generally go back to the employee — the car goes with the person, not the business.
What is a business-owned vehicle?
A business-owned (or business-leased) vehicle is acquired by the business itself, using a chattel mortgage, finance lease or hire purchase. The vehicle belongs to — or is leased by — the business, stays with the business when staff change, and is used to do the business’s work.
Side by side
| Novated lease | Business-owned or business-leased | |
|---|---|---|
| Who chooses the vehicle | Usually the employee | The business |
| Who owns or leases it | Financier, leased to the employee | Business (or lender under a lease or HP) |
| Who makes the payments | Employer, from the employee’s package | The business |
| If the employee leaves | Lease usually stays with the employee | Vehicle stays with the business |
| Best suited to | Cars mainly for an employee’s own use | Work vehicles and pool cars |
Where does fringe benefits tax come in?
Fringe benefits tax applies when an employer provides certain benefits — including the private use of a car — to an employee. The rules are detailed, and they shape whether a novated lease or a business-owned car works out better. A few points from the ATO worth knowing:
- The ATO notes that an employee’s limited private use of a ute, van or other eligible vehicle may be exempt from FBT. For many work utes and vans, that changes the comparison entirely.
- The ATO says eligible electric cars are exempt from FBT, which is one reason electric cars have become popular on novated leases.
- From 1 April 2025, plug-in hybrids are no longer treated as zero or low emissions vehicles for FBT, except in limited cases with commitments made before that date.
These rules have conditions and change over time, so treat them as questions for your accountant rather than answers.
Which suits a work vehicle?
For a vehicle that’s genuinely a tool of trade — a tradie’s ute, a delivery van, a crew vehicle — business ownership or a business lease is almost always the natural fit. The vehicle carries business equipment, is branded, and needs to stay with the business when drivers change. Our ute and van pages cover those purchases.
Which suits a staff car?
For a car mainly used by one employee, including privately, a novated lease can make sense — particularly if it’s electric. For pool cars shared by several staff, or a car the business wants to control, business ownership tends to be simpler. See business car finance for how businesses usually finance staff and pool cars.
If you’d like to talk through the business-owned options for a specific vehicle, make an enquiry — there’s no credit check to ask.
What about business owners?
Owners who are employees of their own company sometimes weigh up a novated lease against a company-owned car. It’s a genuinely individual question that depends on the company’s structure, the vehicle, how much it’s used privately and the owner’s broader tax position. A good accountant will model both.
Questions to take to your accountant
- Who will drive the vehicle, and how much private use will there be?
- Is the vehicle a car under the ATO’s definition, or a ute or van designed to carry a tonne or more?
- Is it electric, a plug-in hybrid or conventional?
- Should the vehicle stay with the business if the driver leaves?
- How does each option affect GST, depreciation and FBT for us?
What happens when people leave?
This is the practical difference most businesses notice. With a business-owned or business-leased vehicle, a driver leaving is an HR matter: the keys come back and the vehicle goes to the next person. With a novated lease, the lease generally goes with the employee, and the employer’s payroll arrangements end. For businesses with frequent staff turnover, or vehicles that carry business equipment and branding, business ownership is usually far simpler.
Let’s look at the business-owned option
If your vehicle should belong to the business, tell us what it is and how it’ll be used. There’s no credit check to enquire, your details stay with one specialist rather than going to every lender in the market, and a real person will call to explain the structures. Please fill in the form accurately, including who’ll drive the vehicle, so we can give you useful options on the first call.
Frequently asked questions
What is a novated lease?
It's a three-way agreement in which an employee leases a car, and the employer agrees to make the lease payments from the employee's salary package. If the employee leaves, the lease usually goes with them.
Is a novated lease better for a business owner?
Not necessarily. Business owners who are employees of their own company sometimes use one, but it depends on the structure, the vehicle and the tax effects. Your accountant is the right person to compare the options.
Can a ute be on a novated lease?
Sometimes. But the ATO notes that an employee's limited private use of a ute, van or other eligible vehicle may be exempt from FBT, which changes the comparison. Ask your accountant.
Does Fleet Car Buyer arrange novated leases?
Our focus is vehicles financed by the business itself. If a novated lease looks like a better fit, we'll tell you so you can explore it with your employer and adviser.