A Finance Lease or Car Lease is a commercial finance product which enables the customer to have the use of a car or commercial vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle.
A Finance Lease can also be known as an Asset Lease or Vehicle Lease.
How does a Car Lease work?
The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease.
At the end of the lease the customer can either pay a residual value (final instalment) on the lease and take ownership of the car, trade it in or re-finance the residual and continue the lease.
Benefits of a Car Lease
- Flexible contract terms ranging from 24 to 60 months (two to five years)
- Fixed interest rate
- Fixed monthly lease rentals
- Costs are known in advance
- A residual can be applied to a lease, lowering monthly payments
- Tax deductions are available when the vehicle is used for business purposes
- As the GST contained in the car’s purchase price is claimed back by the
- financier, only the vehicle’s price exclusive of GST is financed, lowering monthly
- Ability to make advance lease payments for tax deduction or cash-flow purposes
- The lease is secured against the vehicle, allowing lower interest rates
Who does a Car Lease Suit?
Car Leasing is suitable for companies, partnerships, sole traders and individuals where the leased vehicle is used for income producing purposes. It is also ideal for employees who want to salary package a vehicle through a Novated Lease as part of their remuneration.
Tax Implications of a Car Lease
GST is charged on the monthly lease rental and on the residual value at the end of the lease.
Where the customer is registered for GST, they can claim some or all of the GST contained in the lease rental and the residual value as an input credit on their next Business Activity Statement.
Where the amount financed is below the Depreciation Limit the customer claims the lease rental as a tax deduction. Above the Depreciation Limit, interest charges on the lease and depreciation up to the value of the Depreciation Limit can be claimed.