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In general, you can claim deductions for expenses spent on a car you own or lease for work purposes. However, it’s different when you ‘salary sacrifice’ a car, as it is done through a ‘novated lease’ arrangement.

In this case, the employer is the party leasing the vehicle from the finance company, not you, the employee. In a salary sacrifice arrangement, the employer becomes entitled to the benefits of calculating the fringe benefits tax (FBT) payable by them on vehicles provided to employees. The employer either owns or leases the vehicle in a salary packaging arrangement, which makes the car available for their employee’s (you) private use.

So, since you, the employee, don’t own or lease the car in such cases, you can’t claim any ongoing running costs associated with the car, including depreciation.

Just like other financial establishments, leasing companies collect basic information on applicants to have a complete picture for assessment purposes. In particular, these lending establishments consider four key areas during novated lease application assessment: capacity, collateral, character and credit.

But in the case of novated leasing, most everyone is considered eligible as long as they are permanently employed; that is, they have a wage and are paying taxes. For some lenders, it also helps for you to not have a bad credit history.

For novated leasing, most financiers consider the fact that the lease payments will be coming from your employer before you pay any taxes. So, even if you have minor credit issues, novated leasing financiers may be ready to overlook those as long as those are paid or may be paid before the finance is settled.

This question is closely related to the previous one, so the answer is definitely a ‘yes’ – a credit check is a routine task a financier must perform when you apply for a novated lease.

After completing an application, you’ll be asked to provide proof of taxable income, valid identification and privacy consent. Your application tells the bank or financial establishment that you’re in a good financial position and have the capacity to make lease repayments.

The credit check is done to complete your application process and indicates to the bank or finance company that you have the ability to repay the loan amount. In case there’s a negative entry in your credit file, as long as it has been resolved or it’s a minor issue (e.g., late utility bill payments), it shouldn’t affect the outcome of your novated lease application.

It’s not so easy getting out of a novated lease prematurely. Unlike in a car loan where you can sell the vehicle and use the proceeds to pay off the balance, a novated lease works differently.

Since lending companies generate a profit based on the terms of your lease and the payments you make, you’re supposed to conclude your lease within the agreed time frame. So, it’s understandable for them to ensure you adhere to the car lease terms.

To discourage premature termination, certain penalty charges come with it, depending on the financier. These possible penalties and added expenses include:

• Full payment for the remaining balance of the lease
• Early termination fee
• Costs of preparing the vehicle for sale
• Storage and transportation of the vehicle
• Leasing-related taxes
• Negative equity between the remaining lease amount and the current value of the vehicle
• Being required to pay off all the remaining payments of the lease

Again, the conditions of early novated lease termination all depend on the lessor, but you should expect to encounter certain financial complications or difficulties.