Yes — you can put a used car on a novated lease in Australia. It is more common than most people expect, and for a well-chosen three-to-five-year-old car it can work out better than novating something new. What changes is not the tax treatment but the eligibility: financiers care about how old the car will be when the lease ends, and if it is an electric car there is one rule that catches people out badly.
The short version: novating a used car works the same way as a new one — your employer pays the lease from your salary, some of it before tax. The limits come from the financier, not the ATO: most set a maximum age or kilometre reading at the end of the term, they usually want a dealer-sourced or inspected vehicle, and the residual percentage is fixed by lease term regardless of the car’s age. Used EVs are the exception — see the section below before you commit.
Alpha390 arranges novated leases through a specialist partner who fulfils the lease. Start an enquiry and we’ll tell you quickly whether the car you have in mind will fly.
Can you novate a second-hand car?
You can. A novated lease is a three-way arrangement between you, your employer and a financier — and nothing in that structure requires the car to be new. If you want the mechanics of the arrangement itself, how a novated lease works covers it properly.
What a used car changes is the risk the financier is taking on the asset. A five-year-old car at the start of a five-year lease is a ten-year-old car at the end, and the financier has a residual sitting against it. That is where the limits come from.
The limits that actually apply
These are financier policies, not tax rules, and they vary between providers. Expect the following to be assessed:
- Age at the end of the term, not the start. This is the single most misunderstood point. A financier comfortable with a seven-year-old car will often decline the same car on a five-year term and approve it on a two-year term.
- Kilometres, on the same logic — projected reading at term end rather than today’s odometer.
- Where the car comes from. Dealer-sourced vehicles are the smoothest. Private-sale purchases are frequently allowed but usually require an inspection, a clear title check and correct GST handling on the purchase.
- Condition and history. A written-off or heavily repaired vehicle will generally be declined regardless of age.
- Minimum financed amount. Many financiers won’t write a novated lease below a floor value, which quietly rules out cheap older cars.
Because these thresholds differ by provider, the practical answer is not “cars under X years” — it is “tell us the car, the term and the kilometres, and we’ll tell you who will write it.”
The residual is set by the term, not the car’s age
This surprises people. The ATO’s minimum residual percentages depend on the length of the lease, not on how old the vehicle is:
| Lease term | ATO minimum residual |
|---|---|
| 12 months | 65.63% |
| 24 months | 56.25% |
| 36 months | 46.88% |
| 48 months | 37.50% |
| 60 months | 28.13% |
The percentage is applied to the car’s cost excluding stamp duty, registration and CTP. Our guide to novated lease residual values works through how the figure is built.
Why this matters more on a used car: a fixed percentage residual assumes a fairly standard depreciation curve. Used cars have already taken their steepest depreciation, so the residual on a well-chosen used car is often easier to meet at the end of the term than the residual on a new one. That is the genuine financial case for novating second-hand — not the sticker price.
Used electric cars: the trap worth knowing about
The FBT exemption on eligible electric cars is the biggest single saving available through a novated lease. It does not automatically carry over to a second-hand EV.
To be exempt, the car must be a battery electric or hydrogen fuel-cell vehicle designed to carry fewer than nine passengers and under one tonne, first held and used on or after 1 July 2022, and luxury car tax must never have become payable on it at any stage of its sale or import history.
Read that second condition carefully, because it is easy to state loosely and get wrong.
The test is whether LCT actually became payable — not simply whether the car’s price once sat above the LCT threshold. Those are not the same proposition. Whether LCT becomes payable depends on the circumstances of the particular sale or importation, and there are situations in which a car priced above the threshold does not attract it. So “it was an expensive car when new” is not, by itself, the answer.
What matters for a second-hand buyer is the consequence: if LCT did become payable at an earlier stage, buying the car later at a much lower price does not restore the exemption. The exemption is lost for that vehicle, permanently. A prestige EV picked up second-hand well under today’s threshold can still be outside the exemption because of what happened on an earlier sale or import.
This is worth establishing before you commit, not after. Ask the seller or dealer what they can evidence about the vehicle’s original sale or importation, and confirm the position with your employer’s salary packaging provider — they carry the FBT reporting obligation, so they will want the answer regardless.
Two further points:
- Plug-in hybrids are out. The PHEV exemption ended on 1 April 2025. It only continues where a financially binding commitment was already in place before that date, and changing that commitment — including altering the residual or the payment amount, or changing employer — ends it.
- FBT-exempt does not mean invisible. The benefit is still reportable: the notional taxable value has to be worked out, it is reported where it exceeds $2,000 in an FBT year, and the reportable amount is included in income tests — including the income used to calculate HELP repayments. A $0 FBT bill is not the same as no downstream effect.
For the full picture on how the exemption works, see electric car novated leases. The 2026–27 luxury car tax thresholds are $91,661 for fuel-efficient vehicles and $80,809 for everything else, and from 1 July 2026 the fuel-efficient definition tightened to 3.5L/100km.
Where a used novated lease makes sense — and where it doesn’t
| Works well when… | Think twice when… |
|---|---|
| The car is two to five years old and from a model line with a solid resale record | The car will be over the financier’s age ceiling by the end of the term |
| You want a shorter term (two or three years) and a residual you can comfortably meet | You’re stretching to five years on an already-older car purely to lower the fortnightly figure |
| You’re packaging running costs — fuel, servicing, tyres, insurance — which is often where the real saving sits | The car is out of warranty and likely to need major work you haven’t budgeted into the package |
| The vehicle is a post-July-2022 EV on which LCT never became payable | It’s a PHEV, or an EV on which LCT became payable at an earlier sale or import |
How the numbers get worked out
The saving on any novated lease comes from three places: the portion of the payment taken from your pre-tax salary, the GST treatment inside the arrangement, and packaging the running costs. Our explainer on how novated lease costs are worked out walks through what actually moves the number.
If you’d rather own the car outright from day one and skip the employer involvement entirely, compare it against a straight car loan — we’ve set the two side by side in novated lease vs car loan. Neither is automatically better; it depends on your marginal tax rate, your employer’s arrangement and how long you intend to keep the car.
Got a specific used car in mind? Send us the make, model, year, kilometres and the term you’re thinking about. We’ll tell you whether it fits a financier’s policy before you go any further — and if it doesn’t, what would.
Enquire about a novated lease → or call 1300 391 390.
Used car novated lease FAQs
Can you get a novated lease on a used car in Australia?
Yes. Novated leases are available on second-hand vehicles. The limits come from the financier rather than the ATO — most assess the car’s age and kilometres at the end of the lease term, and may require an inspection for a private-sale purchase.
How old can a car be for a novated lease?
There is no single legal limit. Each financier sets its own policy, and the test is usually the vehicle’s age at the end of the term rather than at the start. The same car can be acceptable on a two-year lease and declined on a five-year one.
Is the residual different on a used car novated lease?
The ATO minimum residual percentage is set by the lease term, not the car’s age — 46.88% on 36 months and 37.5% on 48 months, applied to the vehicle cost excluding stamp duty, registration and CTP. Because a used car has already absorbed its steepest depreciation, that residual is often easier to meet at the end of the term.
Does the electric car FBT exemption apply to a second-hand EV?
It can, but only if the car was first held and used on or after 1 July 2022 and luxury car tax never became payable on it at any stage of its sale or import history. Note this is not simply a question of whether the car’s price once exceeded the LCT threshold — the test is whether LCT actually became payable. Where it did, buying the vehicle later at a much lower second-hand price does not restore the exemption. Plug-in hybrids lost the exemption from 1 April 2025.
Can I novate a car I buy privately?
Often yes, though financiers usually require a vehicle inspection, a clear title check and correct handling of GST on the purchase. Dealer-sourced vehicles are generally the simpler path.
Written and reviewed by the Finance Director at Alpha390 Finance.
This article is general information only and does not constitute credit, financial or tax advice. Novated leasing involves your employer and is facilitated through a specialist partner; Alpha390 Finance arranges the referral and does not provide taxation advice. FBT, luxury car tax and residual value outcomes depend on your circumstances — confirm them with your tax adviser and your employer’s salary packaging provider. Any rates referred to are examples only and subject to change; where a comparison rate applies it is based on the specific example given and different terms, fees or loan amounts will produce a different comparison rate. Alpha390 Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees.
