FAQ

A novated lease is an agreement between you, your employer, a car finance provider, and a leasing company that allows you to pay for a car and all of it’s running costs out of your pre-tax income. You can save thousands of dollars in income tax and GST each year, simply by novating your car. Learn about other novated lease benefits like access to wholesale car prices and skipping GST (goods and services tax) on our dedicated page ‘What is a novated lease?’

No, they’re quite different. A car loan comes out of your post-tax salary so you pay for the loan after you’ve paid tax on your earnings, whereas a novated lease comes out of your pre-tax salary, so you pay for your lease before tax and that reduces your tax bill. In almost all cases your tax savings greatly exceed the interest you pay on the lease, so you’re almost always much better off. Check out our direct comparison table on our article: Aren't all loans bad? Why the novated lease is different.

It sure can. Novated leases are designed to help savvy car buyers reduce their taxable income by allowing them to pay for a car out of their pre-tax salary (it’s sometimes called a ‘salary sacrifice’).

A quick example: Let’s say you earn $80,000 a year. You’d be paying over $18,000 in tax and then paying for your car (ownership/lease and running costs) out of the $62,000 remaining after tax (the average Australian spends around $36,000 on a car and then around $5,000 per year to run it). If you put the same car on a novated lease, you pay for a portion of the car and running costs out of your pre-tax salary, reducing your taxable income. This reduces your $18,000 tax bill in a serious way – on a three-year novated lease you’d save around $6,600 in income tax for the life of the lease (over $2,200 a year). In addition, you also avoid GST on your car purchase and running costs. In this example, the GST saving over three years amounts to around $5,000!

Put these savings together and you will save around $11,600 in income tax and GST over 3 years, just by novating your car. That’s an additional $11,600 cash in your pocket. In addition to this, a significant portion of your car expenses have already been paid as part of the novation, so the extra money in your pocket won't have to be spent on your car.

The above example assumes you only use your car a minimal amount for work. However, the higher your business use and the higher your tax rate, the more you can save. See some more examples here or estimate your own tax savings with our novated lease calculator – it’s free and gives you your results in a few clicks.

You can include the car plus all of its running costs. That means fuel, servicing costs, tyres, insurance, roadside assist and even your rego. The more you include, the bigger your tax savings. But we’re flexible – some people like to arrange their insurance or servicing separately, and that’s okay. Our novated lease plans page outlines three popular options (just the car, the car + everything, the car + your choices) with a simplified comparison to help you weigh up the benefits of each. Check out our novated lease plans here.

It’s important to note that some items are not considered to be legitimate car operating costs by the ATO and are therefore unable to be included in a novated lease. These items include, but are not restricted to, road tolls, parking expenses, fines & infringements costs and vehicle options or accessories fitted after the delivery of the car.

At the end of your lease there will always be an amount of money owing on the lease that needs to be paid. This is referred to as the ‘residual’ or ‘balloon’. In essence, the ‘residual value’ is a conservative estimate of what your car will be worth at the end of the lease (the “depreciated value”).

Under ATO regulation, a novated lease must always include a residual value and the ATO has specified formulas that must be used to calculate this residual value. More often than not, the ATO specified residual value is lower than the actual market value of a car at the end of a lease. This means that most people end up in a strong position at the end of a lease, as they can sell the car for more than they owe on the residual. If you chose to sell the car at the end of a lease, any cash you make after paying the residual is yours to keep, tax free.

Another advantage of the residual is that it helps to keep your lease payments low. This is because your lease payment is not calculated on the total cost of the car, but on the cost of the car less the residual.

The balloon payment is just another way to say ‘residual value’. It’s a conservative estimate of what your car will be worth at the end of the lease (and the amount to pay when the lease ends). Residual values are set by the ATO and are based on their estimate of how much vehicles depreciate over a lease term. The standard ATO residual values are calculated as a percentage of the “drive away” price and are as follows:

1-year lease: 65.63%
2-year lease: 56.25%
3-year lease: 46.88%
4-year lease: 37.50%
5-year lease: 28.13%

One thing most people don’t realise about the balloon payment is, it’s almost always lower than the current market value of your car when it comes time to pay it. So if you choose to sell your car, you can pocket a nifty profit.

Fringe benefits tax (FBT) is a tax the Government places on any benefit you receive from your employer related to personal use. In other words, if your employer pays for something that you use in your personal life, it creates an FBT liability for your employer.

Before FBT, employers got into the habit of paying personal “life expenses” for employees before declaring how much they paid them. For example, an employee might have earned $50,000 and had mortgage payments totalling $10,000 per annum, and the employer would pay the $10,000 mortgage repayments for the employee and then declare the employee’s income as only $40,000. This resulted in the employee paying less income tax, which was great for the employee, but not so good for the Government missing out on this tax. So the Government introduced FBT to claw some of this lost tax back.

Any situation where your employer pays for a car on your behalf that you use outside of work may well result in an FBT liability for your employer. Novated leases can create this liability too, however we counteract it by using part of your post-tax salary along with your pre-tax salary. We refer to this post-tax salary sacrifice as an “employee contribution”.

We specialise in looking at your unique circumstances and calculating the exact amount of employee contribution you need to make to offset any FBT liability for your employer.

If you’re looking for a new/used car and you’re a PAYG employee on a regular salary – it’s definitely worth considering a novated lease to reduce your tax bill. Skip to our cheeky checklist of 8 questions to help you decide if it’s a good fit for you.

If you’ve already got a car, you could still be eligible. As long as your car is less than 10 years old at the end of a lease agreement or a classic car, you can get what’s called a ‘Sale and Leaseback‘ novated lease, keep your own car and start reducing your tax bill. Don’t think you need to get a new car to jump on board, learn more about our ‘Sale and Leaseback’ product.

Yup. If you want to lease a used car the process is the same as a new car – we just skip reserving your car, because you’ve already sorted that part out. In some cases we may need to organise an inspection of the car, which is a simple process. So just follow steps 1-5 on the new car process, skip step 3, and that’s all we need to do. There are some restrictions on the car you can buy, so see our full ‘Can I get a novated lease on a used car?’ article for more info.

As long as your car is less than 10 years old at the end of a lease agreement or is a classic car, you can get what we call a ‘Sale and Leaseback‘ novated lease, keep your own car and start reducing your tax bill. Don’t think you need to get a new car to jump on board, learn more about ‘Sale and Leaseback’ here.

New cars, used cars and even currently owned vehicles are eligible as novated lease vehicles. There are some minor rules from the ATO to be aware of:

• The car can’t have a carrying capacity of more than one tonne
• The car can’t  be designed principally to carry a large number of passengers (i.e. it can’t be a minivan). Anything with the carrying capacity of less than 8 seats is fine.

Generally, financiers don’t like to finance cars that are older than 10 years at the end of the lease (so for a 3-year lease, the car can be a maximum of 7 years old). There are exceptions for classic cars.

Under a novated lease, the financier owns the car – you’ll be leasing it off them for the lease term. However, it’s registered in your name and you can drive it like it’s your own. And at the end of your lease, you can choose to pay off the remaining balance (called the ‘residual’) and own your car.

Log books are for calculating the business use on a car – so if you don’t use your car for business, you don’t need to keep a log book. If you do use your car for business, you’ll only need a log book if you choose the operating cost method to calculate your fringe benefits tax (FBT). Under this method, you’d need to keep a log book for 12 weeks during the lease term (so if you have a 5-year lease, that’s 12 weeks in 5 years). We’ll ask you a few questions to assess your situation and let you know which FBT calculation method is the best option for your unique situation.

In short, no. We’ll always need your employer approval to get you onto a novated lease – because your employer needs to make the payments on your behalf out of your pre-tax income. By “employer” we mean that you are a PAYG employee - so if you are a small business owner, provided you pay yourself through PAYG and not directors fees, you will satisfy the “employer” requirement.

If you don’t have an employer, you might like to look at a chattel mortgage or a secured car loan to get into a new car, but it’s important to know that you won’t make any tax savings on these products.

If you’re on a novated lease and you leave your job for any reason, you’ll need to keep making the regular payments yourself until you find a new role. For that period you won’t make any tax savings, but when you get a new role you can transfer your existing lease to your new employer (we can help with that too).

No, because everything is handled online or over the phone, you’re free to choose any novated lease provider in Australia. Novated Leasing is a quirk of the Australian tax system and does not exist in many other parts of the world.  So your novated lease provider should be Australian.

No, a novated lease doesn’t add tax complexity because your payments are handled by your employer. Come tax time, all you need to do is submit your tax return as you normally would. All your vehicle expenses are rolled into your novated lease and are taken care of by your employer in your payslips. In addition, our vehicle reports will help you to complete your tax return if you’d like to go a bit deeper. We’re happy to talk  you through the process if you have questions, just give us a ring.

For a new car on a novated lease, we’ll:

1. Give you a quote: It’s obligation free and is a 10 minute chat on the phone.
2. Get your finance pre-approved: You complete a finance pre-approval application, and we get you green-lit for finance while you choose a car.
3. Reserve your car: You tell us which car you want and we’ll secure your vehicle. More often than not we can get you wholesale pricing on our fleet network too (handy if you really want leather seats or some nicer rims).
4. Send you some paperwork: You and your employer sign some paperwork, your employer sets up your lease payments to come out of your salary each pay cycle, and we chat to the financier to get final approval.
5. Welcome you aboard: We’ll give you your welcome kit with details on how to look after your car (and your fuel card, if you’ve chosen to include fuel).

That’s just the skinny. Get all the details here: ‘Steps to getting a novated lease car’.

On average, about a week. It really depends if your employer is set up for novated leasing and how long it takes to find the car you want.

If your employer doesn’t do novated leases yet, we can guide them through it and get them set up pretty quickly. We’ve got a handy employer guide that tells them what to expect.

If you have a car in mind, we’ll first aim to get you a better price than at the dealership through our fleet pricing network (that takes around 1-2 days). Then, we reserve the car and get your finance approved with a finance application (around 2-3 days). If you’re not sure which car you want, don’t worry, we can help you choose one within your budget – for us, that’s the fun part.

If you’ve been turned down for a novated lease due to bad credit, be sure to ask why. Learning what went wrong tells you what you need to improve in order to get approved the next time, and if it’s something small, it’s possible it can be corrected. If you have a major issue with unpaid credit, then you may not be eligible for a lease, and it might be a better idea to focus on how to fix the underlying problem in your finances.

It’s worth noting that different financiers treat credit issues in different ways. While one financier may turn you down, another may not have a problem with the type of credit issue you have. We have access to a number of sources of finance, so may well be able to find a financier that will take you on. Alternatively, we can put you in touch with a financial planner to help. We’ll never encourage you to get into a lease if we feel that you won’t be able to afford it.

Yes, you can request an account report for your lease at any time from the client section of our website. This report shows your account balance and all transactions that have taken place on your account up to that date.

We’ll continually monitor your novated lease account to ensure that you are travelling in accordance with what you initially estimated and that your expenses on your car are in line with the established budgets. If there’s a discrepancy that is consistent over a period of a few months, we’ll get in touch with you to suggest and discuss a remedy. This may involve an amendment to your salary deductions, but rest assured that this can only occur with your specific written approval.

To request a reimbursement, download the expense claim form here (or contact us for a copy). Fill out the relevant sections of the form, sign it and send it (along with the tax invoice and/or tax receipts) to accounts@novater.com.au, and we’ll process the reimbursement for payment.

Please note that we can only process the reimbursement for payment if we have the required documentation and there are sufficient funds in your novated lease account. Where there is additional documentation required, or there are insufficient funds in your account, we’ll contact you directly to discuss your options.

If you change employers while you’re on a novated lease, your new employer just needs to agree to make your car lease payments from your pre-tax salary. Your old employer will stop paying your lease when they stop paying your salary.

If your new employer gives the ok, we’ll get them to sign a one-page novation agreement (which simply says that they’ll make payments on your behalf while you’re employed with them). Then, we’ll give your employer the pre-tax and post-tax deduction numbers to enter into their payroll system, they enter these numbers and we’re done. We’ll be happy to chat to your new employer to walk them through the process, and we’ve got a handy employer guide if they prefer reading the details online.

At the end of the lease you can choose to:

1. Keep your car by paying off the residual,
2. sell your car, use the money to pay the residual, pocket the difference as a profit and get into a new car on a new lease, or,
3. Refinance the residual in a new novated lease (keep going and worry about it later)

Most of our clients like to sell their car and hop into a new one by setting up  a new novated lease when the previous one ends, and we can help you sell the car without any hassle.

Renewing your lease is a bit quicker because we’ve already got your details. We’ll give you a call 3-6 months before it ends to chat through your options and get the process moving so that it’s a quick transition. Most people are excited to jump into a new car, but if you don’t want to renew, you don’t have to. We can always help you sell your car to pay off the residual, and if the residual is lower than your car’s market price (which it usually is), you’ll pocket the difference. If you want to sell your car on your own that’s no problem too. Just let us know what you choose and we’ll help you get it done.

If you need to cancel your lease at any time, you can. You just have to pay the remaining lease payments and residual. If your lease has been running for a while, chances are that the value of your car will be higher than the amount owing, so you will be able to sell the car and pay off the lease. If you want to end the lease in its early stages, the car may well be worth less than the outstanding amount, so you will have to put in some of your own money.

It’s worth noting that most financiers don’t charge any fees for ending a lease early. In fact, they often give a discount if you end the lease early. It’s rare that a customer would want to end a lease early (because they miss out on pre-income tax savings), but it’s definitely possible and we’d arrange this with the financier for you. And of course we’re always happy to chat through your options first. It’s important to note that if you lose your job, you can take on the lease payments yourself until you find a new job, and then transfer your lease to your new employer when you’re ready.

If you’ve taken out insurance with our fleet insurance provider, please contact our insurance underwriter (Mercurien) on 02 8123 6902. Use your registration number as the reference. They’ll take you through the whole process so you can make an informed decision on what you’d like to do. If you’ve insured your car through your own insurer, you’ll need to follow the process outlined by them.

Novated leasing won’t cost you anything. There’s no admin fees, and no cost to your business. You can help your employees reduce their tax and increase their income for free.

Setting up novated leasing is surprisingly simple. There’s bare minimum paperwork – you only need to sign a one-page novation agreement, which simply says that you’ll make payments on your employee’s behalf while they’re employed with you. We’ll provide the pre-tax and post-tax deduction to enter in your payroll system – enter this and you’re done.

Once you’re set up it’s ‘set and forget’ and comes out of the pay cycle automatically each month. We take care of the reporting and record keeping, and can help your payroll team to set up the deductions. Want all the detail? We’ve mapped out the process in our employer guide.

You only need to sign a one-page novation agreement, which simply says that you’ll make payments on your employee’s behalf while they’re employed with you, and an invoice confirming the amount you agree to pay. We won’t hold you to any exclusivity agreement.

Most employers like to direct debit the payments, which we help set up. If you choose this option, you only need to sign the usual direct debit terms and conditions. That’s it.

Unlike a lot of providers, we don’t have minimum staff requirements and we think exclusivity contracts belong in the bin. We help organisations of all sizes, including government bodies and corporations, but we particularly delight in the chance to help SMEs to optimise their offering.

As we know, salary sacrificing – and particularly novated leasing – can make the world of difference to smaller companies building a culture and striving to improve their team’s experience. If you’re paying your staff through a PAYG structure, then they’ll be eligible for a novated lease, and we’re happy to help you facilitate that – regardless of your size.

We’ll work on a solution that results in a $0 FBT liability for your business. And if you’re an FBT rebatable employer, we can provide you and your staff with the most cost effective solution that considers this. Our FBT reporting gives you all the detail, and will save you any hassle come tax time.