Novated Lease vs Chattel Mortgage for Tradies — Which Is Better?

If you're financing a work vehicle as a tradie, you'll encounter two options: a chattel mortgage and a novated lease. They sound complex but the core difference is straightforward — and for most self-employed tradies, the answer is clear. Here's the honest comparison.

What is a Chattel Mortgage?

A chattel mortgage is the most common way for self-employed tradies to finance a work vehicle. You borrow money to buy the vehicle, which you own from day one. The lender takes a "mortgage" (security interest) over the vehicle until the loan is repaid — similar to a home mortgage but for a vehicle.

Key features:

• You own the vehicle from purchase — it appears on your balance sheet
• Claim GST on the purchase price upfront (on your next BAS)
• Claim interest payments as a tax deduction
• Claim depreciation on the vehicle's value
• Flexible — can set a balloon payment to reduce monthly repayments
• Fixed interest rate for the loan term (usually 2–7 years)

What is a Novated Lease?

A novated lease is a three-way arrangement between you, your employer and a finance company. Your employer pays the lease payments from your pre-tax salary, reducing your taxable income. This arrangement requires you to have an employer — it is not available to self-employed sole traders.

If you're a sole trader or work through your own company where you're the only director/employee, a novated lease is effectively not available to you. This is a common point of confusion.

Head-to-Head Comparison

Which Is Better for Tradies?

For self-employed sole traders: chattel mortgage, every time. You can't access a novated lease without an employer. A chattel mortgage gives you ownership, upfront GST, interest deductions and depreciation — all the tax benefits available to you.

For tradies who work as employees (e.g. apprentices, employees of a building company): a novated lease can be excellent, reducing your taxable income by paying lease costs from pre-tax salary. Talk to your employer's HR department or a financial advisor.

Want the best chattel mortgage rate? Use a broker like Savvy Finance who compares 30+ lenders — you'll typically get a better rate than going directly to a bank.

Free tool: Ute Loan Repayment Calculator — work out your monthly repayments and total interest for any loan amount.

Free tool: Ute Loan Repayment Calculator — work out your monthly repayments and total interest for any loan amount.

Key Differences at a Glance

Why Most Self-Employed Tradies Should Use a Chattel Mortgage

Novated leases are structured for employees who salary package through their employer. As a self-employed tradie, you do not have an employer to set up the arrangement — novated leases simply do not work for sole traders or company directors paying themselves a wage from their own company (without specific structuring).

A chattel mortgage gives you:

• Immediate GST claim — if you are GST registered, claim back the full GST on the vehicle price on your next BAS. On a $55,000 ute that is $5,000 back within 3 months.
• Full ownership from day one — the ute is yours. Modify it, wrap it with your logo, use it exactly as you need.
• Interest deductible — the interest portion of every repayment is a tax-deductible business expense
• Depreciation claim — the vehicle's decline in value (depreciation) is also deductible

→ Compare chattel mortgage rates from 30+ lenders →

→ Calculate your ute loan repayments →

## Which Option Works Best for Self-Employed Tradies Here's where the rubber meets the road: **for most self-employed tradies, a chattel mortgage is the better choice**. Why? Because you need ownership and control. Self-employed tradies typically: - Work with inconsistent income (busy months, quiet months) - Need the ability to sell or trade up quickly - Want to claim depreciation and running costs separately - Prefer not being locked into a fixed contract term With a chattel mortgage, you own the vehicle from day one. That means you can claim the depreciation deduction against your taxable income, and you're not penalised if your business circumstances change. A novated lease works better if you're an employee earning a stable salary through a single employer. But if you're sole trader or running your own contracting business, ownership matters—especially when cash flow is unpredictable. ### The Hidden Tax Advantage: Depreciation Claims This is the part that actually saves tradies real money, and it's worth understanding properly. **With a chattel mortgage**, you own the asset. That means: - You claim depreciation (capital allowance) on the vehicle's value - You claim running costs: fuel, servicing, repairs, tyres, registration, insurance - These deductions reduce your taxable income directly Let's say you buy a $45,000 ute on a chattel mortgage. Over five years, you might claim: - Depreciation: ~$9,000/year (depending on the method and asset class) - Running costs: $8,000-12,000/year (fuel, maintenance, insurance) - **Total annual deduction: $17,000-21,000** If you're paying 37% tax (including Medicare levy), that's roughly **$6,290-7,770 in tax saved per year**. **With a novated lease**, the lease payments are pre-tax deductions, but: - You don't own the asset, so no depreciation claim - Running costs are often bundled into the lease (you don't itemise them) - The tax benefit is front-loaded in the lease calculation, not ongoing For a self-employed tradie, the depreciation claim is gold. It's a genuine deduction that reduces your taxable profit year after year. The ATO allows depreciation using either the **prime cost method** (straight-line) or **diminishing value method** (faster initial write-offs). For tradies, the diminishing value method usually works better because you get larger deductions in the early years when you need cash flow most. **Track this properly.** Use accounting software like Xero to log all running costs and record the depreciation schedule. If you're audited, you need evidence. ## Managing Cash Flow on a Chattel Mortgage The other critical factor for tradies is cash flow volatility. Construction, plumbing, electrical work—it all has seasonal patterns. Some months are booked solid; others are quiet. **A chattel mortgage gives you flexibility:** - If work dries up, you can sell the ute and pay out the loan early (subject to break costs, but you're not locked in) - If business picks up, you can own the vehicle outright faster - You control the repayment schedule—some lenders allow payment holidays or deferrals **A novated lease locks you in:** - You're committed to the full lease term (usually 3–5 years) - You can't exit early without significant penalties - Your employer deducts the payments regardless of your income fluctuations For a tradie with variable income, being locked into a fixed payment is risky. If a major client leaves or you have an injury that slows work, you're still paying the lease. Here's a practical example: You're a plasterer with three major contracts. One falls through. With a chattel mortgage, you can tighten your belt and reduce the loan repayment. With a novated lease, the payment comes out whether you're working or not. ## Quick Comparison: Chattel Mortgage vs Novated Lease | **Factor** | **Chattel Mortgage** | **Novated Lease** | |---|---|---| | **Ownership** | You own it | Employer/lessor owns it | | **Best for** | Self-employed tradies | Salaried employees | | **Depreciation claim** | Yes (ongoing benefit) | No (built into lease) | | **Running costs claim** | Yes (itemised) | Often bundled/limited | | **Early exit** | Possible (break costs apply) | Locked in; heavy penalties | | **Interest cost** | Variable; usually 6–9% p.a. | Wrapped into lease (often higher effective cost) | | **Flexibility** | High—control when to upgrade or sell | Low—tied to employer & lease term | | **Income requirement** | Variable; approval based on security | Stable salary required; employer sign-off needed | | **GST recovery** | Claimable on purchase | N/A (already factored in) | | **Insurance** | Your responsibility | Often included in lease | | **Maintenance** | Your responsibility (deductible) | Often included in lease | ## Frequently Asked Questions --- **The bottom line:** Self-employed tradies should default to a chattel mortgage. You own the vehicle, claim depreciation, control your exit strategy, and maintain flexibility for income volatility. A novated lease is only relevant if you're employed full-time and your employer offers it as a salary sacrifice benefit. Get pre-approved for a chattel mortgage from a specialist lender (many offer tradie-friendly terms), and ensure your accountant records the depreciation correctly from day one. It's the difference between a vehicle that costs you money and one that saves you tax.