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One of the most common queries we receive from clients relates to how the purchase of a car should be structured. This is turn leads to two important considerations – should the car be an employer-provided vehicle and, if so, how should it be financed?

Employer-provided car

As a general rule, the most tax-effective way to acquire a car is for it to be an “employer-provided” vehicle. This means that your employer owns or leases it and provides it to you. Although this will mean that the car becomes a fringe benefit, its taxable value will be assessed concessionally.


Most businesses use either a chattel mortgage, a hire purchase arrangement or a lease to finance the purchase of a car. These options are attractive as they only require security over the car rather than other assets that a business may own.

Chattel mortgages, hire purchase arrangements and leases all involve paying a regular monthly amount to a financier, followed by a larger amount (such as a balloon payment or residual) at the end of the finance term. The main difference between these forms of finance relates to how costs are treated for income tax purposes.

If a chattel mortgage or hire purchase arrangement is used then the employer will own the car for income tax purposes. The car will be shown as an asset in the employer’s financial statements and the chattel mortgage or hire purchase arrangement will be shown as a liability. The employer will claim depreciation and the interest component of the monthly payment as a deduction. The GST included in the costs of the car is generally claimed upfront as an input tax credit.

If a lease is used then the car is treated as if it is rented for income tax purposes. This means that the car is generally not shown as an asset in the financial statements and the lease finance is not shown as a liability. The employer will claim the monthly lease payment as a deduction rather than depreciation and interest. The GST component of the monthly lease is claimed as an input tax credit.

Novated lease

A common form of lease finance is known as “novated” lease. This is where responsibility for the lease is transferred or “novated” from an employee to their employer. This continues until the employee’s employment concludes or the lease residual becomes due, at which point responsibility reverts to the employee.

We generally recommend that a novated lease finance be used due to the flexibility it offers and its administrative efficiency. However, you should contact us before finalising the purchase of a car so we can assess the best way for it to be structured and financed.

How can we help?

When you are looking at salary packaging a car it is extremely important that you select the most effective and appropriate option for you.  Not considering your options thoroughly can result in discovering that your finance arrangement has an unintended consequence.  Our remuneration specialist, Murray Nicholls, can assist with reviewing the possible options and recommend an approach that ensures the maximum tax benefits for you.  Please contact Murray if you would like to discuss this further.  

Murray Nicholls

New to Saward Dawson? Book a free 30 minute consultation

We happily spend 30 minutes without charge with new contacts to explore relevant issues and outline how we can assist. Let us know your area of interest and we will arrange a specialist to meet with you.

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