A 'Lease' is an agreement between the financier and customer whereby the finance company purchases the assett on your behalf and then leases it back to you over a period that you set (usually between 2 and 5 years).
Because a lease involves the financier purchasing the assett on your behalf, the finance company claims back the GST component meaning that you only need to effectively borrow the price of the car minus the GST component. This is how a lease can save you in interest over the course of the loan as opposed to financing the full amount.
A Lease also consists of a residual value which must be paid to the financier at the end of the loan. The minimum residual value is set by the Australian Taxation Office meaning that you may not have a lease with a residual lower than the ATO sets out.
Lease payments incur GST however this can be claimed back by your company depending on your situation. Lease payments may also be a tax deductible expense for yor company, having both these benefits in your favour can make a lease a far cheaper option than the other types of finance available for companies.
The residual component must be paid at the end of the lease to the finance company, however you may sell the asset to recoup the money owed and then pay the residual out.
Advantages:
1. The finance company claims back the GST meaning you only need to borrow the GST exclusive amount, this will save you on interest.
2. Your entire payment may be tax deductible saving your company even more money
3. The GST component on the payments may also be claimed back
4. A Lease does not show as a debt on your balance sheet as it is merely a repayment which may be more beneficial to your company
Disadvantages:
1. You can not put in a deposit as such on a Lease, you can however have substantially larger first payment subject to certain conditions.
2. You can not trade in a vehicle on a Lease
3. You can not have a zero residual, your residual must be equal or greater than the residual component set out by the ATO.
Please note that the above information is factual only and does not take into account your personal financial situation. For any advice relating to financial matters always seek the advice of a professional who will take into consideration all factors relating to your situation. |
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