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:
Here are some of the benefits of novated leasing a second-hand car:
Dealer | Private sale | |
---|---|---|
Eligible for novated lease | Yes | Yes |
GST discount applied to purchase price | Yes | No |
GST discount on running costs | Yes | Yes |
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 |
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 ($91,387 in FY24/25) 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:
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.
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.
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.
Need more information? Read our easy-to-understand novated lease guides.