It’s possible to pay for a used car through a novated lease with the same tax benefits that usually apply. In fact, the process works in much the same way whether you’re getting a brand new car or novating a second-hand vehicle.
The only additional restriction on a used car novated lease relates to the age of the vehicle. To be eligible, your car must not be over 12 years old at the end of your lease term.
The used car can be sourced via a dealership or privately, as long as it meets the other eligibility criteria (i.e. must be a passenger vehicle with a payload of less than one tonne).
With a used car novated lease, you can pay for a second-hand vehicle of your choosing, plus running costs, directly through your pre-tax salary via your employer.
Here’s what happens:
Eligible for novated lease
GST discount applied to purchase price
GST discount on running costs
Let’s imagine a hypothetical driver, Alan, looking for a second-hand ute. Alan finds a 2021 Ford Ranger at a nearby dealership that fits the bill. Here’s what his costs and savings would look like if he decides to pay for the ute through a novated lease.
Vehicle purchase price (2021 Ford Ranger XLT, double cab 4X4)
GST saving on purchase price
Weekly novated lease payment
$291 (including running costs of $118/week)
Annual tax saving (income tax & GST)
Tax saving over a 5-year lease term
If you’re considering a second-hand EV, the tax savings available through an electric car novated lease are significantly larger. That’s because eligible electric and plug-in hybrid vehicles are exempt from fringe benefits tax (FBT) if paid for through a novated lease.
What that means is you can pay for 100% of your lease and related running costs using your pre-tax salary.
To be eligible, the ATO explains that the vehicle must be valued below the luxury car tax threshold ($89,332 in FY23/24) and it must have been first held and used after 1 July 2022. Used EVs that were in use before that date are not eligible for the novated lease FBT exemption.
The cost of a novated lease is largely based on the cost of the vehicle itself. If the used car you want to drive is cheaper than a brand new option, the cost of your lease will likely be proportionately cheaper too.
But there are exceptions to this rule:
Yes, it’s possible to take out a novated lease on a car you already own through a sale and leaseback arrangement.
In this scenario, the lease finance provider purchases your car from you at market value, and then you lease it back from them. In every other respect, the novated lease works just like it would if the lease company had purchased a car on your behalf from a dealer or other private seller.
We find this option is commonly used by people who only became aware of novated leasing after they had already purchased their car.