A novated lease or a chattel mortgage?

A novated lease or a chattel mortgage?

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Should I choose a Novated Lease or a Chattel Mortgage?

Getting the right business car loan can make a difference of thousands of dollars, but how do you know which will give you the better bottom line?

Business owners are faced with the challenge of choosing the right car ownership structures daily. It's often a quick decision that you make so you can get on with growing your business.

Taking a few minutes to consider your commercial car loan structure can make a big difference, so read on to learn more.

Remember, no matter what your business type, getting advice from a great tax specialist or accountant will ensure that you accurately navigate complex tax issues for an optimal outcome.

Chattel Mortgage or Novated lease?

Chattel Mortgage

Novated Lease

Responsibilities of vehicle ownership Running costs can be packaged into payments
Own the vehicle at the end of the loan term Option to upgrade and continue lease
Business use >50% Vehicle for private use
Fixed payments Fixed payments - can be adjusted to factor in use costs
GST is charged on purchase price Fringe benefits tax on lease payments
No GST on loan payments or residual value Income tax savings
Business owns the vehicle Employee owns for the vehicle
Business is responsible for the lease Employee is responsible for the lease
Business makes payments on the balance sheet for the vehicle. Employer makes loan payments using employee pretax salary - off the balance sheet.
Balloon payment to reduce monthly payments Residual value reduces monthly payments.


If you're looking to provide extra-salary benefits for your employees, then novated leasing is the best option to use.

When you need a vehicle to use in your day to day business, you'll want a chattel mortgage to maximise your balance sheet benefits.

Here's the breakdown of the two types of loans:

How a chattel mortgage works:

If you are buying a vehicle that you'll keep and use for your business for the long term, a chattel mortgage is a great way to go.

The business owns the vehicle outright. You can keep the vehicle at the end of the loan term, or trade it in to upgrade, depending on your business needs at the time.

You'll also claim depreciation on the asset each year according to the ATO schedule of depreciation.

There's a large GST saving available if you calculate your balance sheet on a cash basis, and you're registered for GST. In the first BAS following the purchase, you can claim the GST for the vehicle purchase price immediately, even though there's still several years of the loan term.

You can make extra repayments on your chattel mortgage to reduce your taxable income for the year, but there isn't much incentive to do so, as you'll only be saving the interest in each payment.

Depending on your loan contract, repaying the loan early might not result in a reduction in the total interest you'll pay. Read more about making the most of chattel mortgages for business.

Novated leases for your employees

Novated leases are most useful when you want to provide your employees with the benefit of a car, without the hassle or financial pressure of owning a car for each employee.

It's a great option if your employees don't do a lot of driving during the workday, and even if they do, they can choose the car they drive, and claim any kilometres done for work.

The best part is that the employee is responsible for the novated lease, so if they're no longer employed by you, there's no need to worry about an extra car or car loan repayments - the lease stays with the employee.

You can choose to offer fully-maintained or non-maintained novated leases. GST is paid on the purchase price of the vehicle, up to the depreciation threshold, and any packaged running costs, as well as lease payments, can be claimed back as an input tax credit.

Find out more about novated leasing for your business:

Choosing the right loan option:

Choosing between a chattel mortgage and novated lease is easy. You just need to know who should own the car, and what it's primary use will be.

If the car is for private use by an employee, then a novated lease means the purchase won't affect your business cash flow.

When you're buying a car for daily business use, then a chattel mortgage allows you to fund the purchase of the exact vehicle your business needs, and claim back costs of keeping it running.

If you're looking for some loan options for your business, speaking to a Positive car loan specialist can help you to narrow down the best car loans, and provide your employees with the right vehicle under the right loan type.

Find out more about Novated Leasing.

Find out more about Chattel Mortgages.

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