Yes, you can get a novated lease for a used car
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).
How does a used car novated lease work?
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:
- You find a used car for sale, either from a car dealer or private seller.
- You apply for a novated lease through a provider like Novated Lease Australia, based on the car you have in mind.
- If the vehicle is eligible and your application is approved, the lease finance provider purchases the vehicle on your behalf to lease it to you.
- There’s a novated lease GST discount on the purchase price of the used car you’ll be driving (up to $6,191) if it’s purchased from a dealership (most private sellers are not GST registered so there would be no GST payable anyway).
- Lease payments are then automatically deducted from your salary by your employer each time you are paid. These salary sacrifice car payments include your car running costs (fuel/charging, insurance, registration/CTP, servicing and tyres).
- Depending on the type of used car you novate, either all or part of your lease payments are made using your salary before tax is deducted. This lowers your taxable income and tax bill.
- There’s also a GST discount on any running costs included in your lease payments (no matter where the car was purchased from initially).
Benefits of novated leasing for used cars
Here are some of the benefits of novated leasing a second-hand car:
- Cost-effective: Opting for a cheaper used car through a novated lease can reduce your regular payments.
- Tax savings: Enjoy the same tax benefits with a used car novated lease as you would with a new car. This includes savings on GST and reducing your taxable income through pre-tax salary deductions for your car payments.
- Bundled expenses: Just like new car leases, used car novated leases allow you to bundle your vehicle's running costs, such as fuel, maintenance, insurance, and registration fees, into one convenient package.
- Flexibility: Novated leases offer flexibility at the end of the lease term, giving you the option to upgrade to another car, extend your current lease, or make a final balloon payment to take full ownership.
Used car novated lease: Dealer vs private sale
| Dealer | Private sale | |
|---|---|---|
Eligible for novated lease | Yes | Yes |
GST discount applied to purchase price | Yes | No |
GST discount on running costs | Yes | Yes |
Used car novated lease cost example
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.
| Item | Amount |
|---|---|
Vehicle purchase price (2021 Ford Ranger XLT, double cab 4X4) | $51,590 |
GST saving on purchase price | -$4,545 |
Weekly novated lease payment | $291 (including running costs of $118/week) |
Annual tax saving (income tax & GST) | $3,544 |
Tax saving over a 5-year lease term | $17,722 |
Find out how much you could save with a novated lease
Find my best dealFBT exemption on used EVs through a novated lease
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.
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Will a used car novated lease work out cheaper?
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:
- As mentioned already, a used EV or PHEV that was first in use before 1 July 2022 will not be eligible for the FBT exemption. If that's the case, a used car would likely cost more under a novated lease (depending on its age) than a more expensive new vehicle that is eligible for the FBT exemption.
- Novated lease interest rates may be higher on used cars compared to new vehicles in some cases. This could impact the overall calculation for whether a used or new vehicle will work out cheaper (this is also the case with most finance options – e.g. a car loan).
- If the cost of maintaining the used car (e.g. servicing and replacement tyres) is higher than a similarly-priced new car, your regular novated lease payment could be slightly higher. But again, this would be down to the higher cost of maintaining a used car, which would be the case no matter what way you pay for it. A used car novated lease could actually bring down your maintenance costs considerably compared to other options due to the income tax and GST savings available.
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Choosing the right used car for your novated lease
When considering a used car for your novated lease, it's essential to focus on vehicles that are reliable, even if they are a few years old. Consider cars with a comprehensive service history, low to moderate mileage, and a reputation for durability.
Your Novated Lease Australia consultant can advise on used car options to fit your budget and lifestyle needs.
Can I get a novated lease on a car I already own?
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.
FAQ: Novated lease for used cars
What are the age limits for a used car under a novated lease?
Used cars eligible for a novated lease typically must not be older than 12 years at the end of the lease term.
Can I lease any type of used car with a novated lease?
Yes, you can lease pretty much any kind of used vehicle through a novated lease, including sedans, SUVs and utes, as long as they meet the age criteria and are in good condition.
How does the novated lease process differ for a used car compared to a new one?
The process for securing a novated lease for a used car is the same as it is for a new car. The only potential difference is needing to provide additional information about the vehicle you’re buying, what condition it’s in and who’s selling it.
Are there financial benefits to choosing a used car for my novated lease?
Choosing a used car for your novated lease can offer significant savings, including a lower purchase price and the potential for lower insurance costs, all while still enjoying the tax benefits of novated leasing.
How can I ensure the quality of the used car I want to lease?
It’s always a good idea to have a used car checked thoroughly before committing. That includes a mechanical check as well as checks to ensure the car hasn’t been stolen or previously written off and doesn’t have any finance owing on it.
Novated lease guides
Need more information? Read our easy-to-understand novated lease guides.
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Get the best deal on a novated lease
Find my best dealWritten by
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CEO
Bevan Guest
Reviewed by
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Editor
Sean Callery
