Can a sole trader get a novated lease? Why the employer rule decides it, how a company director differs, and what self-employed Australians use instead.
Business Owners Hub
Novated Lease · Sole Trader · Employer Requirement
An ABN looks like it should open the same door as a pay packet. It does not. A novated lease needs an employer, and a sole trader does not have one, so here is where that rule bites and what to use instead.
Quick Answer
A sole trader generally cannot get a novated lease, because it needs an employer and a sole trader is not an employee for FBT. A company director can be different. Common alternatives are a chattel mortgage, a finance lease or an ABN car loan.
Also called: novated lease self employed, novated lease for ABN holders. Both ask the same thing: whether someone without a conventional employer can use salary packaging for a car.
Can a sole trader get a novated lease?
A sole trader cannot get a novated lease through their own business, and the common belief that an ABN can stand in for an employer is where the confusion starts.
The ATO's position is plain. It says that if you are a sole trader or a partner in a partnership, you are not an employee, and benefits you provide to yourself are not subject to FBT (ATO, How fringe benefits tax works, updated 17 July 2024, read 4 November 2026).
That one line does most of the work on this page. The ATO describes a novated lease as a three-way agreement between an employer, an employee and a novated lease provider (ATO, Novated leases data matching, updated 23 February 2024, read 4 November 2026), and it says car leasing is commonly done through a novated lease in a salary sacrifice arrangement (ATO, Car leasing and FBT, updated 12 January 2023, read 4 November 2026). You are not an employee, so you have no salary to sacrifice and nobody else to sign as the third party.
The answer changes with your structure, not with your ABN. The table sets out each position against the employer requirement.
| Your position | Employee for FBT? | What decides it |
|---|---|---|
| Sole trader | No. The ATO says you are not an employee. | There is no employer to enter the agreement, and benefits you provide to yourself are not subject to FBT. |
| Partner in a partnership | No. The ATO says you are not an employee. | The same employer requirement stops a partner as stops a sole trader. |
| Beneficiary who works in a trust's business | Yes. A beneficiary of a trust who works in the business is included. | Whether the trust will act as the employer and a provider will accept it, which varies by provider. |
| Director paid by their company | Yes. A director of a company is included. | Whether the company will act as the employer and a provider will accept it, which varies by provider. |
| Sole trader who also has a job | Yes, in that job. A current employee is included. | Whether that employer offers it. The ABN neither helps nor blocks it. |
| Employee of a business that offers it | Yes. A current employee is included. | Whether your employer offers the option of salary packaging a vehicle. |
Sources: ATO, How fringe benefits tax works, last updated 17 July 2024. Consumer Affairs Victoria, Rent to buy and novated leasing, last updated 13 October 2023. Read 4 November 2026. "Varies by provider" and the job row are broker knowledge, not a published rule.
The next step follows from that. If you are not an employee, the question moves from how to get a novated lease to which business finance suits the car.
Why does a novated lease need an employer?
A novated lease needs an employer because the whole arrangement is built on salary packaging. Consumer Affairs Victoria says your employer may offer you the option of leasing a vehicle by effectively sacrificing a portion of your salary (Rent to buy and novated leasing, updated 13 October 2023, read 4 November 2026).
Take the employer away and each part of that sentence falls over. There is no salary to sacrifice from, nobody to make the offer and no third party to the agreement.
What works
- An employer that offers salary packaging pays you a salary
- That employer signs the three-party agreement
- Lease payments run through salary, not a business account
- A company or trust acts as the employer, where a provider accepts it
What stalls
- You are a sole trader with no employer above you
- You are a partner in a partnership
- You expect an ABN alone to fill the employer's role
- No employer is named anywhere in the paperwork
In practice, the employer requirement is the first thing to clear, not a formality to work around. It sits ahead of the car, the price and the term.
Does the electric car FBT discount help a sole trader?
The electric car FBT discount does not reach a sole trader, because the ATO describes the exemption as being for private use by a current employee or their associates (ATO, Electric cars exemption, updated 1 April 2026, read 4 November 2026). From 1 April 2025 a plug-in hybrid is not a zero or low emissions vehicle, with limited transitional exceptions.
A change to those settings has also been announced. On 5 May 2026, ahead of the Federal Budget, the Government announced the discount continues in full until the end of March 2027 (Treasury release, 5 May 2026, read 4 November 2026). Between 1 April 2027 and 1 April 2029, electric cars costing $75,000 or less stay at the full discount, and those over $75,000 and below the luxury car tax threshold move to a 25% discount. From 1 April 2029, all electric cars below that threshold get the 25% discount. Existing leases won't be impacted. This change is not yet law, as at 4 November 2026, and a bill to make it is before Parliament (ATO, Electric car discount, updated 3 November 2026, read 4 November 2026).
For a sole trader the announcement changes little, because the discount runs through an employer either way. The finance side of an electric car on an ABN is covered in our electric car finance post.
What about partners and trust beneficiaries?
A partner sits in the same position as a sole trader, while a beneficiary who works in a trust's business sits on the other side of the ATO's line.
The same ATO page says an employee for FBT purposes includes a current, future or past employee, a director of a company, and a beneficiary of a trust who works in the business. It puts a partner in a partnership outside that group, so going into partnership does not get you past the employer requirement.
A trust is less clear cut. Being counted as an employee for FBT is not the same as having a lease approved. The trust would still need to act as the employer, and whether that is accepted varies by provider. In practice, that conversation starts with the accountant who looks after the trust, before you price a car.
Can a company director get a novated lease through their own company?
A company director can be in a different position, because the ATO says a director of a company is an employee for FBT purposes. Your company is a separate entity from you, so it can take the employer's seat in the three-party agreement in a way a sole trader's business cannot. The difference is the company structure, not the ABN.
Two things follow from that.
- The FBT stays in the picture. The ATO says the employer pays FBT, so here that means your company. Our post on FBT on a company car covers how that works for an owner.
- The provider still decides. Whether a provider will accept a lease where you control the employer, and what income it wants to see from the company, varies by provider.
Changing your structure to reach a novated lease is a bigger decision than the car. Our post on sole trader or company on vehicle finance shows how each structure reads to a lender, and the tax side belongs with your accountant.
What are the sole trader novated lease offers you see online?
Sole trader novated lease offers need testing against one question: who is the employer on the agreement? This post does not assess any particular offer. The rule is the same whoever is advertising, and one common version is a company set up to pay you a salary, which is the director route above and not a lease for a sole trader. Put these questions to any provider before you sign.
- Who is the employer? A novated lease has an employer as the third party. If none is named, ask what the contract is actually called.
- Where do the payments come from? Salary packaging comes out of a salary. If payments leave your business account, you may be looking at a different product.
- Who holds the lease? A lease in your business name may simply be a finance lease. That can be a sound product, but it is not a novated lease.
- What is the FBT claim based on? Any pitch built on an FBT concession needs explaining, because the ATO says benefits you provide to yourself are not subject to FBT.
In practice, the contract type matters more than the label on the ad. Ask for it in writing, then compare the product as what it is.
What do self-employed people use instead?
Self-employed people usually look at a chattel mortgage, a finance lease, hire purchase or an ABN car loan instead of a novated lease. None of them needs an employer.
- Chattel mortgage. The business borrows to buy the car, and the car secures the loan.
- Finance lease. The financier owns the car and you lease it, usually with a residual value at the end. Our post on finance and operating leases explains the split.
- Commercial hire purchase. You pay the car off over the term, and it becomes yours once the contract is finished.
- ABN car loan. A broad term for vehicle finance written on your business rather than on a salary.
On tax, the ATO says you can claim interest on a motor vehicle loan, lease payments and depreciation for a vehicle used in running your business, for the business share, and that the vehicle must be owned, leased or under a hire-purchase agreement (ATO, Deductions for motor vehicle expenses, updated 27 May 2026, read 4 November 2026). It also says the logbook method is only for sole traders and some partnerships claiming for a car (ATO, Logbook method, updated 19 June 2024, read 4 November 2026). A logbook is the record that sits behind that claim, and our depreciation post covers the schedules.
Which one suits depends on the car, your cash flow and how the business is set up. If you contract on an ABN, our post on car finance for IT contractors walks through that case.
A novated lease needs an employer, and a sole trader or a partner does not have one. A director or a beneficiary who works in a trust's business can count as an employee for FBT, but the lease still depends on the company or trust and on the provider. Where no employer is on the agreement, compare business finance on its own terms.
Key takeaway: settle who the employer is first, then compare what you can use instead of a novated lease.Frequently Asked Questions
Having an ABN does not get you a novated lease, because the arrangement runs through an employer rather than an ABN. If you are a sole trader or a partner, the ATO says you are not an employee for FBT purposes. Our ABN car loan guide covers the finance that is written on an ABN.
Whether it is better to lease a car as a sole trader depends on how the car is used, your cash flow and your tax position, so no single answer fits. A sole trader would be looking at a lease to the business rather than a novated lease. Our comparison guide sets a chattel mortgage, lease and hire purchase side by side, and your accountant can test the tax side.
A sole trader cannot salary sacrifice in the way an employee can, because salary sacrifice runs through an employer and the ATO says a sole trader is not an employee. Benefits you provide to yourself are not subject to FBT. Vehicle costs are claimed for the business share instead, and your accountant can confirm how that applies to you.
The most tax efficient way to buy a car as a sole trader has no single answer, because it depends on your income, your business use and your records. The ATO says you can claim the business share of interest, lease payments and depreciation on a vehicle used in running your business, and it must be owned, leased or under a hire-purchase agreement. A tax deduction is only part of the comparison, so ask your accountant to run the options on your numbers.
A novated lease without an employer does not work in the ordinary sense, because the employer is the third party to the agreement. If no employer is involved, the contract is likely to be a different product, such as a finance lease or hire purchase. Ask what the contract is before you sign.
FBAA Accredited
