The short answer: a novated lease is for employees. A chattel mortgage is for business owners. They are fundamentally different products, and choosing the wrong one can cost you thousands in lost tax benefits or, worse, leave you ineligible altogether.
If you are trying to work out which one fits your situation, this guide compares them side by side with real numbers, tax implications, and examples relevant to Central Queensland workers and businesses.
Quick Comparison: Novated Lease vs Chattel Mortgage
| 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, GST) |
| GST treatment | GST savings built into lease pricing | Claim full GST upfront on next BAS |
| Running costs | Often bundled into one payment | Separate from finance (claimed individually) |
| Employer involvement | Required -- employer must agree to salary package | None |
| FBT | Employer liable (often passed to employee via ECM) | Only applies if private use by employee |
| End of term | Balloon payment, refinance, or return vehicle | Vehicle is yours -- pay off loan and done |
| Portability | Can transfer to new employer | Not tied to any employer |
| Typical interest rates (2026) | 6-9% (bundled into package) | 5.5-9.5% (standalone loan) |
What Is a Novated Lease?
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 tax is calculated. This reduces your taxable income, which means you pay less income tax.
The "novation" part means your employer takes on the obligation to make the lease payments on your behalf, deducting the amount from your pay. If you leave the job, the lease responsibility reverts to you (it is portable between employers).
How a Novated Lease Works
- You choose the vehicle you want
- A novated lease provider sets up the lease with a finance company
- Your employer agrees to salary-package the lease payments
- Payments are split: part from pre-tax salary, part from post-tax salary
- Running costs (fuel, insurance, servicing, tyres, rego) are often bundled into one regular payment
- At the end of the term, you pay the balloon/residual, refinance, or hand back the vehicle
Who Should Consider a Novated Lease?
A novated lease works best if you tick these boxes:
- You are a PAYG employee (not a sole trader or business owner)
- Your employer offers salary packaging (most large employers do, many smaller ones do not)
- You are in a higher tax bracket (the tax savings increase as your marginal rate increases)
- You want the simplicity of one bundled payment covering finance and running costs
- You are comfortable with a balloon payment at the end of the term
Many CQ workers in mining and resources use novated leases because the large employers in the Bowen Basin -- BHP, Glencore, Anglo American -- all offer salary packaging as a standard benefit. If you are earning $120,000+ at a mine site and your employer offers salary packaging, a novated lease can deliver genuine savings.
Novated Lease Tax Savings Example
Sam is a FIFO worker based in Mackay, earning $130,000 per year. He wants to lease a $55,000 Toyota HiLux SR5 over 4 years with a 30% balloon ($16,500).
Without salary packaging:
- Sam pays for the vehicle from his after-tax income
- At a 37% marginal tax rate (plus Medicare levy), every dollar he spends on the car has already been taxed
With a novated lease:
- His employer deducts approximately $850/month from his pre-tax salary for the lease and bundled running costs
- This reduces his taxable income by around $10,200 per year
- At his marginal rate, that saves roughly $3,800 per year in income tax
- Over 4 years, that is approximately $15,200 in tax savings
- Plus GST savings on the purchase price built into the lease structure (approximately $5,000)
Total estimated benefit over 4 years: around $20,200.
These numbers are indicative. The actual savings depend on your salary, tax bracket, the vehicle, and how the lease is structured. Always get a personalised quote.
Novated Lease Downsides
- Your employer must agree to salary packaging -- if they do not offer it, you cannot get a novated lease
- Fringe Benefits Tax (FBT) applies. Under the Employee Contribution Method (ECM), you make some post-tax contributions to reduce or eliminate the FBT liability. This reduces (but does not eliminate) the tax benefit
- You do not own the vehicle during the lease term
- There is a balloon payment at the end -- you need a plan for this (pay it, refinance, or hand back the car)
- If you change employers, the lease transfers to you until your new employer agrees to take it on
- The bundled running cost estimates are just that -- estimates. If you drive more than projected or fuel prices spike (common in regional Queensland), you may face a shortfall
What Is a Chattel Mortgage?
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 you pay off the loan. It is the most common form of business vehicle finance in Australia.
How a Chattel Mortgage Works
- You find the vehicle (or we source it for you)
- You apply for finance with your ABN and supporting documents
- The lender pays the dealer or seller directly
- The vehicle is registered in your name from settlement
- You make fixed monthly repayments over 1-7 years
- Once paid off, the PPSR registration is removed and you own the vehicle outright
Who Should Consider a Chattel Mortgage?
A chattel mortgage fits if:
- You have an ABN and use the vehicle for business
- Your business is GST-registered (turnover over $75,000) -- this is where the biggest advantage lies
- You want ownership from day one
- You want to claim GST upfront on your next BAS
- You prefer to manage running costs separately rather than bundling them
For CQ businesses -- tradies, mining contractors, agricultural operations, transport companies -- chattel mortgage is the default choice for good reason. It gives you ownership, GST recovery, and straightforward tax deductions.
Chattel Mortgage Tax Savings Example
Lisa runs an earthmoving business in Rockhampton, turning over $650,000 a year. She buys an $82,500 Ford Ranger Wildtrak (inc. GST) on a 5-year chattel mortgage at 6.9%.
| Tax benefit | Amount | Timing |
|---|---|---|
| GST refund on BAS | $7,500 | Next BAS period |
| Year 1 interest deduction | ~$4,800 | End of financial year |
| Year 1 depreciation | ~$9,375 (prime cost, ex-GST value) | End of financial year |
| Running costs (fuel, service, rego, insurance) | ~$8,000 | Claimed throughout year |
Lisa gets $7,500 back in her pocket within weeks of settlement. Her taxable income drops by roughly $22,175 in year one from the combined deductions. At a 37% marginal rate, that translates to about $8,200 in tax savings in year one alone, on top of the GST refund.
The Ranger has a payload over one tonne, so the ATO car limit ($69,674 for 2025-26) does not apply. Lisa claims on the full ex-GST purchase price.
Chattel Mortgage Downsides
- You need an ABN and genuine business use for the vehicle
- There is no salary packaging benefit -- it is a straight business loan
- If you are not GST-registered, you miss out on the upfront GST credit (the biggest financial advantage)
- You manage running costs separately -- no convenient single bundled payment
- The vehicle appears as both an asset and a liability on your balance sheet from day one
For more detail on chattel mortgage structures, see our chattel mortgage vs hire purchase guide.
Tax Treatment: The Key Difference
The fundamental tax difference between these two products comes down to how you save money.
Novated Lease: Pre-Tax Salary Deductions
Your employer deducts lease payments before calculating your income tax. You earn less taxable income, so you pay less tax. The savings are proportional to your marginal tax rate:
| Taxable income | Marginal rate (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 |
The higher your income, the more a novated lease saves you. This is why they are particularly attractive for mining workers on $130,000-$200,000+.
Chattel Mortgage: Business Tax Deductions
You claim interest, depreciation, and running costs as business deductions. If GST-registered, you also claim the full GST on the purchase price upfront. The savings come through:
- GST credit: 1/11th of the purchase price back on your next BAS
- Interest deductions: The full interest component of repayments reduces taxable income
- Depreciation: Spread over the effective life of the vehicle (typically 8 years) or instant write-off if eligible
- Running costs: Fuel, servicing, insurance, registration -- all deductible in proportion to business use
GST Treatment: Where It Gets Interesting
Novated Lease GST
When a novated lease is set up, the finance company buys the vehicle and claims the GST. This saving is passed through to you in the form of a lower lease cost. You do not claim GST directly -- it is handled within the lease structure. The practical effect is that you effectively pay the ex-GST price for the vehicle, saving roughly 9.1% of the purchase price.
However, you do not see this as a cash refund. It is baked into the lease payments.
Chattel Mortgage GST
If your business is GST-registered, you claim the full GST as an input tax credit on your next BAS. On a $66,000 vehicle (inc. GST), that is $6,000 back in your bank account within weeks.
This is real cash flow, not a reduction in payments. For businesses that need working capital -- and in CQ, that is most of them -- this upfront cash back is a significant advantage.
Not GST-registered? You cannot claim the GST with either product. The GST is simply part of the vehicle cost.
Running Costs: Bundled vs Separate
Novated Lease: Everything in One Payment
Most novated lease providers bundle running costs into your regular payment:
- Fuel
- Insurance
- Registration
- Servicing and maintenance
- Tyres
- Roadside assistance
This is convenient. One deduction from your pay covers everything. But the running cost estimates are based on averages. If you drive more than expected or fuel prices spike (common in regional Queensland), you may face an end-of-year shortfall that you need to top up.
Chattel Mortgage: You Manage Everything
With a chattel mortgage, your loan covers the vehicle purchase only. Running costs are your responsibility, and you claim them separately as business deductions.
This gives you more control and transparency, but it requires more administration. You need to keep receipts, maintain a logbook for business-use percentage, and manage multiple payments (loan, fuel card, insurance, servicing).
For most CQ business owners who already track expenses for tax purposes, this is not a burden. It is just normal business management.
Real CQ Scenarios: Which Product Wins?
Scenario 1: Moranbah Mine Worker (Employee) -- Novated Lease
Chris earns $155,000 as a maintenance supervisor at a coal mine near Moranbah. His employer (a major mining company) offers salary packaging.
Chris wants a $60,000 Toyota LandCruiser Prado for commuting between Mackay and site, plus family use on weekends.
Why novated lease wins:
- Chris is a PAYG employee -- he cannot get a chattel mortgage
- At his income level (37% marginal rate), pre-tax salary deductions deliver meaningful tax savings
- His employer handles the payroll deductions -- minimal admin for Chris
- Bundled running costs simplify budgeting
- Estimated tax saving: approximately $5,500 per year
Estimated 5-year benefit: around $27,500 in tax and GST savings.
Scenario 2: Rockhampton Electrician (Sole Trader) -- Chattel Mortgage
Jake is a sole-trader sparky in Rockhampton, turning over $190,000 a year. He needs a $62,000 Ford Ranger XLT for work.
Why chattel mortgage wins:
- Jake has an ABN and is GST-registered -- he qualifies for a chattel mortgage
- He cannot get a novated lease (he is not an employee)
- Claims $5,636 GST on his next BAS -- immediate cash back
- Ranger payload exceeds one tonne, so no ATO car limit applies
- Interest and depreciation deductions reduce his taxable income by roughly $14,000 in year one
Scenario 3: Gladstone Power Station Worker (Employee, Lower Bracket) -- Novated Lease (Maybe)
Megan earns $75,000 at the Gladstone power station. Her employer offers salary packaging, and she wants a $40,000 Mazda CX-5.
The numbers are tighter here:
- At a 30% marginal rate, the tax savings are moderate (approximately $2,400 per year)
- FBT costs eat into the savings
- After accounting for FBT and post-tax contributions, the net benefit may be only $1,000-$1,500 per year
- Still worth it, but Megan should get a personalised quote to check the actual net benefit
Key takeaway: Novated leases deliver the strongest savings for employees earning $100,000+. Below that, the FBT impact can reduce the benefit significantly.
Scenario 4: Emerald Cattle Property (Business) -- Chattel Mortgage
A family cattle operation near Emerald needs two new LandCruiser 79 Series utes ($85,000 each, inc. GST). Annual turnover is $1.2 million.
Why chattel mortgage wins:
- GST-registered business claims $15,454 GST across both vehicles on the next BAS
- LandCruiser 79 Series are exempt from the car limit (well over one tonne payload)
- Full depreciation and interest deductions from settlement
- Vehicles are business assets from day one -- straightforward for the property's books
- Farm vehicles doing station work and livestock transport have clear business-use justification
The FBT Factor: Why It Matters for Novated Leases
Fringe Benefits Tax is the elephant in the room with novated leases. When your employer provides you with a car (or pays for one via salary packaging), the ATO considers this a fringe benefit and charges FBT.
The FBT rate for 2025-26 is 47% of the taxable value of the benefit. That sounds brutal, but the Employee Contribution Method (ECM) reduces or eliminates it by having you contribute post-tax dollars towards the lease. Most novated lease providers structure payments as a mix of pre-tax and post-tax deductions to manage FBT.
The net effect: your total tax saving is less than the pre-tax deduction alone might suggest. A $55,000 vehicle might deliver $3,000-$5,000 per year in net savings after FBT, depending on your income and usage.
Electric vehicles (EVs) are currently FBT-exempt under certain conditions (first used after 1 July 2022, below the luxury car tax threshold). This makes novated leases particularly attractive for EVs -- the FBT saving alone can be worth $5,000-$10,000 per year. However, EV charging infrastructure in CQ is still limited, so factor that into your decision.
With a chattel mortgage, FBT only applies if the business vehicle is made available for private use by an employee (including a working director). Sole traders and partners are not subject to FBT on their own vehicle use -- they simply apportion expenses based on business-use percentage.
Can You Switch Between Them?
Not easily, and generally not at all.
- If you are an employee, you cannot get a chattel mortgage. You do not have an ABN, and the vehicle is not a business asset.
- If you are a business owner, you cannot get a novated lease (it requires an employer-employee relationship). You could technically salary-sacrifice through your own company, but FBT makes this rarely worthwhile.
- If you leave employment and start a business (or vice versa), you would need to refinance into the appropriate product at that point.
The exception: if you are an employee who also has a side business with an ABN, you could potentially have a novated lease on one vehicle (for personal/commuting use) and a chattel mortgage on another (for business use). This is uncommon and worth discussing with a finance broker and accountant.
Which One Saves You More Money?
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 income = bigger tax saving | Higher turnover = more deductions |
| GST registration | N/A (handled in lease) | GST-registered = upfront GST credit |
| Vehicle type | Any vehicle | Commercial vehicles escape car limit |
| Employer support | Employer offers salary packaging | N/A |
| Running cost preference | Want bundled simplicity | Want control and transparency |
| Ownership preference | Do not mind not owning during term | Want ownership from day one |
Rule of thumb:
- Employee earning $100,000+ with an employer that offers salary packaging? Novated lease.
- ABN holder with a GST-registered business? Chattel mortgage.
- Employee earning under $80,000? Run the numbers carefully -- FBT may eat most of your novated lease savings.
- Business owner not GST-registered? Chattel mortgage still works, but the benefit is smaller. Consider hire purchase as an alternative.
Frequently Asked Questions
What is the main difference between a novated lease and a chattel mortgage?
A novated lease is for PAYG employees -- your employer deducts car payments from your pre-tax salary, reducing your taxable income. A chattel mortgage is for ABN holders -- you take a business loan, own the vehicle from day one, and claim tax deductions for interest, depreciation, and GST. The right product depends entirely on whether you are an employee or a business owner.
Can a sole trader get a novated lease?
No. A novated lease requires an employer-employee relationship. If you are a sole trader, you are self-employed and cannot salary-package a vehicle through yourself. Your options are chattel mortgage, hire purchase, or a standard car loan. See our car finance overview for all the options.
Is a novated lease worth it for mining workers in CQ?
Often, yes. Mining workers on salaries of $120,000-$200,000+ are in higher tax brackets where the pre-tax salary deductions deliver significant savings. Major CQ mining employers (BHP, Glencore, Anglo American) offer salary packaging as a standard benefit. The key is to get a personalised quote that accounts for FBT and your specific circumstances -- do not rely on generic calculators.
Do I pay GST on a novated lease?
Not directly. The finance company claims the GST when purchasing the vehicle and passes the saving through to you in the form of lower lease costs. You effectively pay the ex-GST price, but you do not receive a GST refund or credit. With a chattel mortgage, GST-registered businesses claim the full GST as a cash refund on their next BAS.
What happens to a novated lease if I change jobs?
The lease is portable. If you leave your employer, the lease responsibility transfers back to you. Your new employer can agree to take on the novation (continue salary-packaging the payments), or you can make payments directly until you find an employer willing to do so. You are never locked into a specific employer.
Can I use a chattel mortgage for a personal vehicle?
No. A chattel mortgage requires business use and an ABN. If you want to finance a personal vehicle without business use, your options are a personal car loan, a novated lease (if your employer offers salary packaging), or dealer finance. If the vehicle is used partly for business, you claim deductions proportional to the business-use percentage.
Which has lower interest rates -- novated lease or chattel mortgage?
Chattel mortgage rates tend to be slightly lower (5.5-9.5% in 2026) because the lender has direct security over the vehicle. Novated lease rates (6-9%) factor in the administrative costs of the three-way arrangement. However, comparing interest rates alone is misleading -- the total cost depends on tax savings, FBT, running costs, and your individual circumstances.
Should I get a novated lease on an electric vehicle?
If your employer offers salary packaging, an EV novated lease is currently one of the best vehicle finance deals in Australia. EVs that meet certain conditions are FBT-exempt, which means the biggest cost of a novated lease (FBT) is eliminated. The tax savings can be substantial. However, consider CQ's charging infrastructure -- if you regularly drive long distances on remote roads, an EV may not be practical yet.
Can I have both a novated lease and a chattel mortgage?
Technically, yes -- if you are an employee with a side business that has its own ABN. You could novated-lease your personal vehicle through your employer and chattel-mortgage a work vehicle through your business. This is uncommon but legitimate. Talk to an accountant about the implications.
Next Steps
Whether you are an employee looking at salary packaging or a business owner weighing up your finance options, the right structure can save you thousands over the life of a vehicle.
- Car finance overview -- Compare all your finance options in one place
- Chattel mortgage vs hire purchase -- If you have an ABN, compare the two main business finance structures
- Talk to a CQ car broker -- We help you find the right vehicle and the right finance, no matter which structure suits
This guide is general information only and is not financial, tax, or legal advice. Tax laws, FBT rules, and finance regulations change regularly. Always consult a qualified accountant or financial adviser before making vehicle finance decisions. Information is current as of April 2026.
