Can you novated lease a used car?
Yes. There is no ATO rule that restricts novated leasing to new vehicles. The salary sacrifice mechanism and associated tax benefits apply equally to used cars, provided the vehicle meets the eligibility criteria set by the ATO and your novated lease provider.
Most providers will accept a used car for a novated lease if it satisfies the following conditions:
- The vehicle will be no more than 12 years old at the end of the lease term
- It is roadworthy and registered (or registerable) in Australia
- It is not designed to carry more than 8 passengers (minibuses and some commercial vehicles are excluded)
- It is not a vehicle used predominantly for business purposes with a pre-existing business registration
The 12-year age rule is the critical constraint. A car that is 9 years old today can be leased for a maximum of 3 years. A car that is 7 years old has up to 5 years of eligible lease term. Most providers will not write a lease where the car would exceed the age limit before the lease ends.
How the tax saving works on a used car
The income tax benefit mechanism is identical for used and new cars. Your employer deducts the lease repayments from your pre-tax salary, reducing your taxable income. The saving per dollar of sacrifice is your marginal tax rate — 34.5% for most earners in the $45,001–$135,000 bracket.
The GST saving, however, is different. For new cars purchased through a provider, the employer claims the full GST credit (1/11th of the car's purchase price) when buying the car. For used cars purchased from a dealer, GST still applies and can be claimed. For used cars purchased privately — from an individual, not a dealer — no GST was charged in the sale, so there is no GST credit to claim. This means buying a used car privately through a novated lease does not generate the GST saving that makes new and dealer-used car leases more attractive in year one.
Does the EV FBT exemption apply to used EVs?
This is the key question for anyone considering a second-hand Tesla or BYD. The ATO's EV FBT exemption applies to vehicles that were first held and used on or after 1 July 2022. This means:
- A used EV first registered in August 2022 or later — FBT exempt ✓
- A used EV first registered before 1 July 2022 — not exempt ✗
The "first held" date is the date the car was originally delivered to its first owner — not when you buy it. So a 2023 Tesla Model 3 bought second-hand in 2026 still qualifies for the FBT exemption, because it was first held after 1 July 2022. A 2021 Model 3 does not qualify, regardless of who owns it now.
Given that EVs in Australia only started selling in meaningful numbers from late 2022 onward, most used EVs currently available will qualify for the exemption. As the fleet ages, this will become a more important distinction to check before committing to a specific used vehicle.
Worked example — used EV vs new EV on a novated lease
Here is a comparison of a 2-year-old used Tesla Model 3 RWD purchased from a dealer for $44,000, versus the same model new at $54,900, over a 3-year lease at $90,000 salary.
The used car saves about $1,900 less in year one than the new car — partly because the purchase price is lower (less GST to claim) and partly because the smaller finance amount means a smaller sacrifice. However, the fortnightly cost is also lower, which may suit employees who want a smaller payroll deduction.
The used car's residual at lease end is 46.88% of $44,000 = $20,627. The new car's residual is $25,738. This means the used car has a lower balloon payment to deal with at lease end — a practical advantage if you plan to pay out and own the car.
Risks specific to used car novated leases
Residual value risk
With a new car, the ATO minimum residual (46.88% for 3 years) is usually reasonably close to what the car will sell for in the second-hand market. With a used car that is already 2–4 years old, the ATO residual may exceed what the car will be worth in the market by the time the lease ends. If you need to sell the car to fund the residual payment, a shortfall comes out of your own pocket.
Warranty and servicing costs
A used car outside its original manufacturer's warranty may have higher servicing costs during the lease term. For non-EV cars, unexpected mechanical failures can blow out your running cost budget. For used EVs, battery degradation is a real consideration — particularly for NMC-chemistry vehicles (most Teslas and non-BYD EVs). Budget conservatively for servicing and consider whether the provider's running cost budget can absorb unexpected repairs.
Provider acceptance
Not all novated lease providers accept used vehicles, and those that do may charge higher interest rates or have tighter age restrictions than the ATO's 12-year limit. Always confirm with your provider that they will finance the specific vehicle you are considering before spending time negotiating with the seller.
Used car novated lease — who it suits
A used car novated lease is best suited to employees who: want a lower fortnightly sacrifice than a new car would require; are comfortable with the residual value risk at lease end; have identified a specific used vehicle (often a pre-owned EV with post-July 2022 registration) that offers good value; or cannot afford the new car equivalent but still want to access salary sacrifice tax benefits.
It is less suited to employees who prioritise certainty of residual value, want a full manufacturer warranty throughout the lease term, or are looking for the maximum possible GST saving in year one.