Frequently Asked Questions
What is a novated lease?
A novated lease is a tax effective way to buy and finance your car and its running costs.
Can I have a novated lease?
As long as you are a salaried employee, than yes you may be able to have a novated lease
Does my employer have to approve it?
Yes your employer always needs to be involved for a novation to exist
Does it cost my employer money?
No, a novated lease does not cost your employer any money as they are simply packaging payments from you pre-tax salary and any relevant GST is claimed back like any other business expense (as long as they are registered for GST).
What if my employer has never dealt with this before?
No problems, we work with you and your employer 100% of the way to make sure it is as easy and simple as possible.
Will I have to pay Fringe Benefits Tax (FBT)?
All novated leases are subject to FBT but we have options available that can negate any or all of the liability
Don’t I have to drive lots of kilometres for it to be worthwhile?
No, with the recent changes to FBT there is a benefit whether you drive a little or a lot.
What are the changes to how FBT is calculated?
Previously FBT was calculated based on the number of kilometres you drove, This has now been changed so that regardless of kilometres travelled it is a flat rate of 20% under the statutory method
Don’t I have to earn lots of money to get a benefit?
No this is a common myth about novated. Novated leases are not a one size fits all and as such regardless of your income we can help you achieve a benefit or at least point you in the right direction.
What if I am not the driver of the car?
You can novate a vehicle for your spouse or partner and even your children. Some restrictions do apply in regards to registered owner of the vehicle.
What is included in the budgeted running costs?
Any costs associated with the actual running of your vehicle can be included in the budgets. This typically includes; fuel, tyres, servicing, maintenance, comprehensive insurance, rego and CTP, roadside assistance and even detailing of your vehicle. Road Tolls etc cannot be included.
Can I novate my motorbike?
No, motorbikes are not considered passenger cars and as such if you salary package your motorbike it is treated differently by the ATO. You should always seek qualified tax advice in this situation.
What can I novate?
Novated leases are designed for passenger vehicles only. Specifically, they have a carrying capacity of less than 1 tonne and seat less than 9 passengers.
Can I choose the car?
Yes you can choose the vehicle which is one of the great benefits of a novated lease but you should always check with your employer in regards to their current vehicle/ novated lease policy.
I only work part time, can I novate?
Yes you can but it is subject to approval from your employer and applicable lending criteria.
I am here on a working 457 visa, what options do I have?
Like any form of finance, you can still novate your car subject to lender and employer approval.
I want to novate but I don’t use my car for business?
While plenty of people think that novated leases are only for heavy business use, this is not the case as the statutory method of calculating FBT (the most common method) simplifies the accounting process and limits the personal usage to a flat 20% regardless of your actual business use.
Isn’t it very complicated?
While it may be true that it’s not the most straightforward process to get your head around; the fact is that you won’t be doing any of the heavy lifting. We will take you through the entire process and once it is set up all you need to worry about is keeping your car on the right side of the road..
Do I have to buy a new car?
No, you can novate a new car, a used car or even your current car. Some lenders have criteria in regards to age of vehicle at lease end but we will work your lease around these age groups.
How do the GST savings work?
GST can be saved in a number of ways against your vehicles purchase price on the running costs of your car. These savings are not typically available on standard forms of car loans.
What is employee contribution or ECM?
ECM is where you make your salary deductions through a mix of pre and post-tax payments. We do this in order to negate the FBT liability. Each situation is different so best speak to one of our consultants to make sure this is the best option for you.
How can I novate my existing car?
Simple, we purchase the car from you for current market value and then lease it back, commonly called “sale and leaseback”. Like any novated lease you still can take ownership at the end of the lease by paying out the residual balance owing.
Can I choose the residual value?
No the ATO sets strict guidelines in regards to residual values on novated leases. The only time we may be able to change a residual on a novated lease is with excessive kilometres, typically more than 40,000 per year or for excessive wear and tear like driving on dirt roads. Taking these into account the lender will still apply the appropriate market residual.
What happens at the end of the lease?
You have multiple options at the end of your lease;
- Refinance: Depending on the age of your vehicle you may be able to refinance the residual value
- Extend: You may extend your existing lease (only available for short terms)
- Payout: You could payout the residual balance and take ownership of the vehicle
- New Lease: You could sell your existing car and novate a brand new car. Some fleet groups will even sell your car for you.
What happens if I leave my employer?
- Should you leave your current employer the vehicle will go with you. Once you find a new employer you may novate the car with that new employer and continue as normal, subject to their approval.
- If you are not going to a new employer it is treated as a straight finance lease where you are liable for the repayments. Running costs are also removed from the contract so you are only making payments against the finance component.
What if a novated lease is not right for me?
Don’t worry, novated leases are not for everyone which is why CoverU conduct a thorough review of your vehicle finance needs and recommend the most most appropriate product for your situation.
Recommendations are purely the opinion of CoverU and its consultants and you should always seek qualified tax advice for your situation.
What is GAP cover and do I need it?
GAP or Motor Equity insurance is a very good way to protect yourself should your car be stolen or become a total write off. In some instances your comprehensive insurance cover may not be enough to pay out the finance owing against your car, especially early in a loan or lease term. This cover in most cases can be included in your finance contract.
What about extended warranty?
Extended warranty is cover that protects you from problems arising after your vehicles manufacturer warranty has expired. This can be taken at the time you purchase your car or any time prior to your current vehicles warranty expiring and is a good way to save against large unexpected repair bills. Even if your current warranty has expired, give us a call as we do have options available.
Who should I use for my comprehensive insurance?
There are a number of insurers and different policies available. By speaking to a qualified consultant you will be able to make an educated decision based on your specific needs or requirements.
What types of vehicles can I finance?
There is finance available on most vehicles from cars and motorbikes to trucks and trailers but some determining factors may mean higher or lower interest rates, different contract terms, is a deposit required and even the type of finance you can apply for.
What if I have a bad credit rating (credit file)?
Whilst this may mean certain lenders may not approve you for a loan there are other options available and contrary to popular belief it doesn’t always mean you pay more than everyone else.
What does a secured loan mean?
A secured loan typically means your finance is supported by the asset or vehicle you are purchasing. Secured finance nearly always means cheaper interest rates so that you pay less because there is less risk to the financier. If you do not meet the agreed repayments or contract obligations the financier can repossess the asset or vehicle to recoup some of their losses.
How do I know if I will be approved?
Talk to us! We will walk you through the process and let you know what options you have available.
What types of finance does CoverU have available?
We have all kinds of vehicle and equipment finance available. They range from novated leases, operating leases, chattel mortgages, finance leases, hire purchases, personal leases and consumer car loans. CoverU are focused on providing you the right product every time for your particular circumstances.