Can a Sole Trader Get a Novated Lease? ABN Holders, Contractors and Company Directors
Sole traders and contractors paid on an ABN cannot novate a lease, and no paperwork changes that. Why, what running your own company changes, and what the self-employed can claim on an EV instead.
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A sole trader cannot get a novated lease, and neither can a contractor whose income arrives through an ABN, because the arrangement needs an employer that pays you a PAYG salary and agrees to deduct the lease from it. The ATO’s position is blunt: a sole trader “is the business owner and not an employee of your business”, so “you can’t pay yourself a salary or wage.” The electric car FBT exemption follows the same logic and applies only to a car provided to “a current employee or their associates”. The ABN itself is a red herring: an employee who also holds an ABN for side work can novate through their employer without difficulty, and a director who takes a PAYG wage from their own company can have the company novate the lease. This page covers who fits where, what the company route actually involves, and what the self-employed can claim on an EV instead. The mechanics and the numbers are in our EV novated lease guide.
Why a sole trader cannot novate
Three parties sign a novated lease: you take out the lease, your employer takes over (“novates”) the payments and deducts them from your salary before tax, and the financier owns the car. Everything the arrangement does depends on the party in the middle. The income tax saving exists because the payments come off a wage before PAYG withholding; the FBT exemption exists because the employer would otherwise owe fringe benefits tax on the private use of a car it provides to an employee.
A sole trader has no employer, is not their own employee, and does not draw a wage. The ATO’s page on deductions for salaries and wages says it directly: “If you operate as a sole trader, you are the business owner and not an employee of your business. This means you can’t pay yourself a salary or wage.” Money you take out is a drawing of profit, not salary, and there is nothing for a lease to be deducted from. Providers say the same in their own words; LeaseLab’s FAQ puts it as “sole traders are not eligible as they’re not considered employees receiving a traditional salary.” A partner in a partnership is in the same position, because partners are not employees of the partnership.
Who fits where
| Your situation | Novated lease? | Why |
|---|---|---|
| Employee on a PAYG salary, with or without a side ABN | Yes, if your employer offers salary packaging | The lease runs through the employer’s payroll; the ABN is irrelevant |
| Contractor paid on invoices through an ABN | No | No employer, no wage to deduct from, even if you work for one client |
| Sole trader | No | You are the business, not its employee |
| Partner in a partnership | No | Partners are not employees of the partnership |
| Director or employee of your own company or trust, paid a PAYG wage | Yes, with conditions | The company is the employer and novates the lease; see below |
| Labour-hire or agency worker on a PAYG payslip | Usually yes | The agency is the employer; ask whether it offers packaging |
One common confusion: “self-employed” appears on some provider pages as eligible. It means people who employ themselves through a company, not sole traders.
The company route: what it involves
If you already run your business through a company, or a trust with a corporate trustee, the entity can employ you, pay you a PAYG wage and novate a lease on your behalf. Plenty of small-business owners do exactly this. Before you do, five things.
The company becomes an employer in every sense. It registers for PAYG withholding, reports each pay through Single Touch Payroll, pays superannuation guarantee at 12 per cent on your wage, and signs the novation deed. If you already pay yourself a wage, most of this exists; if you take profit as dividends or trust distributions, it is new machinery.
The wage has to be real and large enough. The lease and running costs are deducted from the wage, so the wage has to cover them with income to spare, and the saving is your marginal rate on the packaged amount: 30 cents in the dollar between $45,001 and $135,000 in 2026-27, 37 cents to $190,000, 45 cents above, plus the 2 per cent Medicare levy. A director on a $60,000 wage who packages $14,000 saves about $4,500 a year in tax; the same director paying themselves $40,000 saves about $2,400 and may not cover the provider’s fees.
The FBT exemption applies, and so does the reportable fringe benefit. The exempt car is still reported on your income statement as a reportable fringe benefits amount, which counts for the Medicare levy surcharge, HELP repayments, family payments and child support. The novated lease guide works through the numbers.
The car has to meet the same tests. Battery electric or hydrogen, first held and used on or after 1 July 2022, never subject to luxury car tax, and a car rather than a one-tonne ute or van. The $75,000 cap arrives on 1 April 2027 for new arrangements; our 2027 changes page has the dates.
Do not set up a company for this alone. A company’s running and compliance costs are real, and a structure chosen to save tax on a car is the kind of thing the ATO looks at under the personal services income rules. If a company makes sense for your business anyway, the lease is a bonus. Get an accountant to set it up, and ask specifically whether your income is personal services income, because that changes what the company can do with it.
What the self-employed can claim instead
A sole trader who buys or finances an EV for the business does not get the FBT exemption, because there is no FBT to be exempt from, but does get the ordinary business deductions, and on an EV they are worth having.
The ATO’s motor vehicle expenses page lists what a business can claim: “fuel and oil, repairs and servicing, interest on a motor vehicle loan, lease payments, insurance cover premiums, registration, depreciation.” For an EV, fuel means electricity, and the cost to charge is a fraction of petrol. Depreciation is capped at the car limit, $69,883 for 2026-27, and the GST credit on the purchase at one eleventh of that, $6,353, the same caps that apply to a novated lease.
The catch is business use. You can only claim the business percentage, and the ATO’s page is explicit: “The percentage that is for private use isn’t claimable.” Travel between home and your place of business is private unless you run a home-based business and the trip is for business. Sole traders set the percentage with a logbook, or use the cents-per-kilometre method for smaller claims. Keep the logbook honest; the ATO says motor vehicle claims are “an area where we often see errors made.”
So the comparison for a sole trader is not novated lease versus nothing. It is a business-use deduction on an EV, which for a car used mostly for work can be worth as much as a novated lease is to an employee, against a car used mostly privately, where the deduction is small and the honest answer is that the employee across the road has the better deal.
Casual, part-time and fixed-term employees
These are employees, and they can novate. What varies is the provider’s appetite: a five-year lease against a six-month contract or an irregular casual roster will get extra checks on income stability, and some providers will want a shorter term or a larger residual. Smart’s eligibility checker, for example, lists casual and fixed-term work as needing “a few extra checks”. Ask before you shop for the car.
For everything else, the EV novated lease guide covers what the lease saves, which cars qualify, the state differences and what to ask before you sign.
Frequently asked questions
Can a sole trader get a novated lease?
No. A novated lease needs an employer to take over the lease payments and deduct them from a PAYG salary, and a sole trader is the business, not its employee; the ATO's position is that a sole trader cannot pay themselves a wage. The electric car FBT exemption also applies only to a car provided to a current employee. A sole trader who wants the tax break has to change structure, or use the ordinary business deductions instead.
Can I get a novated lease if I have an ABN?
If you are an employee on a PAYG salary and also hold an ABN for side work, yes: the lease runs through your employer and the ABN is irrelevant. If your only income is invoiced through the ABN as a contractor or sole trader, no, because there is no employer and no wage to deduct from.
Can a company director salary package an electric car?
Yes, if the company pays the director a PAYG wage. The company is then the employer: it novates the lease, deducts the payments from that wage, and the FBT exemption applies to the car in the usual way. The company takes on an employer's obligations, the director still gets a reportable fringe benefit, and the saving depends on the wage being high enough to sit in the 30 per cent bracket or above.
What EV tax break does a sole trader get instead?
The ordinary business deductions: the business-use share of lease payments or depreciation, capped at the car limit of $69,883 for 2026-27, plus running costs, and a GST credit of up to $6,353 on the purchase. Private use is not deductible, and the trip between home and work counts as private. There is no FBT exemption to use, because FBT is a tax on employers.