Schedule 2: Novated Leasing

Introduction

2.1 This Schedule applies to a novated lease for a vehicle entered into by an individual through their employer and salary packaging arrangements related to that lease. A novated lease is not credit regulated under the NCCP Act, and Schedule 1 of this Code does not apply to novated leasing.

2.2 This Schedule does not apply to salary packaging for other types of benefits and does not apply to fleet finance for Small Business customers, which is covered by Schedule 3. This Schedule also does not apply to our contractual or other arrangements with employers.

How does a novated lease work?

2.3 There are different types of services offered in the novated leasing sector, including salary packaging, finance for vehicles, and vehicle management services. These services may be provided by one or more entities.

2.4 A salary packager helps set up and manage your salary deductions for a novated lease, but does not provide vehicle financing or manage the vehicle itself.

2.5 A novated lease provider arranges and might be the financier for your vehicle, but does not typically handle salary packaging (unless they also act as a salary packager) or provide day-to-day vehicle management services.

2.6 A financier provides the finance for your vehicle, but does not provide any other services related to the novated lease, the vehicle or your salary package.

2.7 If a novated lease provider also offers maintenance, fuel cards, and insurance, they would be both a novated lease provider and/or a salary packager and/or a vehicle management company, offering an all-in-one solution.

2.8 This Schedule and the Code applies to us if:

a. we are the novated lease provider and we are the financier for the vehicle – this means we are responsible for the obligations related to the finance lease and the novation agreement; and/or

b. we are the salary packager – this means we are responsible for the obligations relating to the non-financed components of the salary package; or

c. we are the financier for the vehicle – this means we are responsible for the obligations relating to the finance lease and the novation agreement.

2.9 A “financed component” means amounts financed for the vehicle, but may also include things such as on-road costs, CTP insurance, registration, after-market products, such as a window tint, other insurances (in some cases) and so on.

2.10 A “non-financed component” means other amounts that are subject to a budget that is “packaged” or set aside by a salary packager and might include things, such as maintenance, fuel cards, insurance, and roadside assistance.

2.11 A novated lease is a three-way agreement between you, the novated lease provider or the financier, and your employer. Your employer may offer a novated lease to you as part of your overall remuneration arrangements. You will need to make your own enquiries with your employer whether this is an option that is available to you.

2.12 A novated lease is a finance arrangement used with salary packaging where your employer pays for the vehicle lease and running costs out of your salary package. These may be a combination of pre-tax and post-tax salary deductions. You enter into a finance or operating lease with a financier and have the use of the vehicle. Your employer makes deductions from your salary.

2.13 Your lease instalments for the vehicle, including any finance costs, such as fees and interest, and running costs such as fuel, servicing, registration, on-road costs, insurance and fringe benefits tax (FBT) may be calculated into the deductions your employer takes out of your salary.

2.14 Your employer will remit the deductions to the salary packager who will then allocate the payments in accordance with the terms of your salary package. Salary deductions received from your employer will be applied to your lease payments.

Information about your novated lease and salary package

2.15 Before you enter into a novated lease and salary package, you will be given information by the financier or the salary packager depending on the service they provide:

Salary packager – Information in your quote

Details of the vehicle you have chosen, including all options and accessories
The proposed term of the lease, which typically varies from one to five years
The estimated deductions from your salary which will include lease payments, and may include registration, any budgeted components applicable for the vehicle, such as a fuel card, servicing, comprehensive insurance, any breakdown or roadside assistance package or other products and services, which may be calculated on a monthly or other basis
The pre and post-tax amounts that make up your estimated total lease deduction and the resulting impact on your take home salary
Administration fees and document fees
Whether any commissions may be paid or received in relation to your lease and by whom
The residual value for which you are liable at the end of the lease, exclusive of GST
All relevant taxes that are payable on the purchase of the vehicle such as stamp duty and luxury car tax (where applicable) and information on the FBT value

Financier – Information in your finance lease agreement

Lease rental payments
The proposed term of the lease, which typically varies from one to five years
Whether any commissions may be paid or received in relation to your lease and by whom
The residual value for which you are liable at the end of the lease, inclusive of GST

2.16 Your quote will also include the amount financed, the amount of the lease payments spread over the number of payroll periods during your lease, and may include the Novated Lease Interest Rate.

Insurance for your leased vehicle

Comprehensive insurance

2.17 You will be required to comprehensively insure your vehicle for the term of the novated lease. You have the option to choose any comprehensive insurance offered through your salary package provider or you can elect to source your own insurance provided it meets the terms of the novation agreement.

2.18 A novated lease provider or salary packager's quote will include information about any insurance products that are included in the novation agreement, the amount of the premium, and a copy of or a link to the insurance product disclosure statement (PDS).

Additional or add-on insurance

2.19 A salary package may include add-on insurance. In some cases, employers may require an employee to have certain add-on insurance. Add-on insurance products include, but are not limited to, insurance coverage for tyre and rim damage, key replacement, and engine protection. If you purchase add-on insurance as a condition of participating in your employer's novated leasing/salary packaging program, the salary packager will tell you the total premium for the add-on insurance over the life of the product and provide you with a copy of or a link to the insurer's product disclosure statement (PDS).

2.20 If you have opted to receive information about an add-on insurance product, the salary packager will give you clear information to enable you to make an informed decision about purchasing the add-on insurance product including:

the total cost of the insurance;
how long the insurance lasts for;
the dollar limits on benefits payable under the insurance;
the date the insurance ends;
any key policy exclusions such as age, residency and employment status; and
the limits of the policy, including the circumstances in which a payout will be made and the amount of the payout.

2.21 The law imposes a mandatory four day pause period between you entering a novated lease and the sale of any add-on insurance. This period of time will give you further opportunity to consider whether you need the add-on insurance product.

2.22 You can also opt out of receiving any communication about add-on insurance.

Changes to your novated lease

Changing employer

2.23 If you change employer or cease employment this may have significant impacts in relation to your novated lease. This is because all finance payments and other benefits (such as a fuel card) in a novated lease are linked to your employer.

2.24 The salary packager will provide information about the process of changing or ceasing employment with your employer when you enter into a novated lease, based on the relevant rules and taxation arrangements that are known at that time. These can change over time.

2.25 If you change employer then normally the novation arrangement with your employer will end.

2.26 If you have a new employer, you may be able to enter into a new novation agreement with the financier and your new employer. This will be subject to any of your new employer's policies or conditions, and the novated lease provider agreeing to provide novated lease arrangements through your new employer.

2.27 If your new employer does not enter into a new novation agreement, you will be required to manage the financial obligations yourself, whether that might be by paying out the lease in full or making monthly payments (see below). You will need to discuss this with your financier or novated lease provider.

Breaking a novated lease contract

2.28 If you want to terminate the lease early you will be advised about the total costs to be paid by you to end the lease.

2.29 Depending on the length of the lease that has expired, the payout amount may be higher than the current market value of the vehicle.

2.30 There may be early repayment and other administration fees for ending the lease. If there are such fees, the novated lease provider will tell you the total costs to be paid by you for breaking the lease early.

Overspending on the lease budget

2.31 The salary packager will provide you with running costs budget statements. If the salary packager or novated lease provider expects that your running costs will exceed the budget, then the salary packager or novated lease provider may discuss with you how to bring your running costs budget into line.

2.32 If there is overspend and you are asked to modify the spending, that modification cannot be unreasonably refused by you. Otherwise, the salary packager or novated lease provider may have the right to curtail services to bring the budget back into line.

Disclosure about options at the end of your lease

2.33 You will be given clear information by the novated leasing provider or the financier about the options available to you at the end of your novated lease in relation to the return of the vehicle or paying the financier the residual value immediately at the end of the lease (depending on the type of lease you have).

Prompt and fair resolution of complaints and disputes

Complaints about novated lease finance

2.34 If we are the financier and we are not able to resolve the complaint to your satisfaction, then we will provide you with information about other options that may be available to you.

2.35 If we act as agent for a principal who is the funder of your novated lease finance and the funder is not able to resolve the dispute to your satisfaction, and the funder is a member of AFCA and the matter is subject to AFCA's jurisdiction, you can complain to AFCA about the finance and/or the entity who is the funder of the finance. We will not be able to resolve your complaint if we act as an agent for the funder.

Complaints about the vehicle

2.36 If your complaint relates to vehicle-specific matters, such as the acquisition, or maintenance of the vehicle (or an after-market product for the vehicle), or a warranty claim in relation to the vehicle (or an after-market product for the vehicle) you should first contact the dealer or seller directly, especially if you sourced the vehicle yourself.

Complaints about insurance

2.37 If you have a complaint about the insurance taken out in relation to the vehicle, you should contact the insurance provider or the person who distributed the insurance to you. We will provide you with the insurer's contact details if the insurance was arranged through us. If the insurer is not able to resolve the complaint to your satisfaction, then you can raise your dispute with AFCA.

2.38 If your employer has their own insurance arrangements in place that apply to your vehicle, you will need to resolve any insurance-related complaints with your employer.

Complaints about salary packaging

2.39 If you have a complaint about your salary packaging arrangement, or a component of the arrangement, such as a fuel card, you should contact the salary packaging provider. If the salary packaging provider is not able to resolve the complaint to your satisfaction, they should tell you about options for external dispute resolution (EDR), which might include access to a customer advocate or AFCA, in some cases.

Complaints about independent advice

2.40 Complaints about the independent tax or financial advice you received prior to entering into a novated lease contract should be made to the person or firm who gave you that advice. If the adviser is not able to resolve the complaint to your satisfaction, you can complain to:

AFCA, if the person is a financial adviser;
Chartered Accountants Australia & New Zealand or CPA Australia, if the person is an accountant; or
the Law Society or Bar Association in your State or Territory, if the person is a lawyer.