Finance lease
an agreement to lease equipment over a set term with fixed payments
has a pre determined residual value which is based on ATO guidelines
lessee can payout the residual value at the end of the lease to gain ownership
finance leases show on your balance sheet (both assets and liabilities)
payments may be fully tax deductible provided you use the equipment to generate assessable income
Operating lease (Rental)
equipment is rented over a set term. At the end of the rental term it is either returned, upgraded, purchased at market price, or rental of the equipment continues
perfect for businesses seeking to use the most modern equipment and upgrade to the latest technology. Avoid being stuck with outdated equipment that holds little or no re-sale value
payments don’t show on the balance sheet as a liability, they are treated as an operating expense
rental payments can be 100% tax deductible on condition the equipment is used to generate assessable income
Fully maintained operating lease
the main difference compared to that of an operating lease is that there is the option to include service and maintenance costs associated with renting the equipment
Hire purchase (Asset purchase)
a fixed rate loan, whereby monthly installments are made over a set term, usually 1-5 years
with each installment you gain equity in the goods,& ownership transfers to you with the final payment
may include a balloon payment enabling lower repayments, which can be refinanced at the end of the term
the interest component of the repayments and the depreciation on the equipment can be claimed as tax deductions provided you use the equipment to generate assessable income
Chattel mortgage (equipment loan) (Bill of sale)
ownership of the goods takes place on date of purchase although the financier takes a mortgage over the equipment as security for the loan which is released upon final payment
allows the purchaser to claim back all the GST in first BAS after purchase
may include a balloon payment enabling lower repayments
the interest component of the repayments and the depreciation on the equipment can be claimed as tax deductions provided you use the equipment to generate assessable income
Novated lease
usually a vehicle financing arrangement made between the employee, employer and financier to provide a car as part of a negotiated salary package
the employer pays the rental (and if agreed) the associated running costs of the vehicle direct from the employee’s pre-tax salary
provides tax break for the employee while at the same time enabling them to have their car of choice
if the employee leaves, they are responsible for the vehicle and the repayments
Sale and leaseback/ hireback
designed for businesses that have already purchased the equipment, enabling injection of funds back into the business through finance or refinance of the equipment
payments are tax deductible provided you use the equipment to generate assessable income
