Finance Lease

Finance Lease is where a leasing company (lessor) takes ownership of vehicles and equipment and then leases them out to a business (lessee) for an agreed repayment amount and term, usually two-to-five years. Leasing finance may be ideal when you need vehicles or equipment that has long effective lives.

A leasing finance agreement is at a fixed rate, fixed term contract and lease payments are also usually tax deductible, and you should be able to claim the GST proportion of your payments for tax purposes.

At the end of the lease the borrower (lessee) can either pay a residual value (final instalment) on the lease and take ownership of the equipment or car, trade it in or re-finance the residual and continue the lease.

You may also be able to claim some tax benefits, including depreciation and the interest costs.

Benefits of a Finance Lease:

• preserves the existing cash of the business, allowing funds to be invested in more productive areas of the business;
• other associated costs may be finances such as comprehensive insurance, registration and on-road costs;
• fixed rate and term, allowing for accurate budgeting and cash flow management;
• lease rentals can be specifically structured to suit the business cash flow;
• lease rentals are allowable tax deductions if the asset is used to generate assessable income;
• finance leases are off-balance sheet transactions and require minimal business administration; and
• residual value is predetermined.

As with all other types of business finance, you should thoroughly investigate the taxation and accounting implications with your accountant, as this is not specific to your situation and is general information only.