Finance lease
Understanding a "standard" lease
A Finance Lease - According to AASB-Australian Accounting Standards Board a lease is: an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. A lease is classified as a finance lease if it 'transfers substantially all the risks and rewards incidental to ownership of an asset.' (AASB 117, p.8)
Leases are a tax effective product that allows you to "lease" the product with no capital outlay. When one leases an item/product the ownership remains with the financier (lessor). Your business is responsible for regular monthly repayments and in leasing the risks and benefits of ownership are transferred to you (lessee). The term may vary between 1 and 5 years and the interest rate is fixed for the term of the contract.
Characteristics of a financial lease:
Available to companies and individuals where the item is for business use
Lease payments are generally tax deductible. Interest and depreciation claimable as an expense for accounting and taxation purposes
Lessee is responsible for the running costs and residual risk which is stipulated on the contract
Taxation guidelines apply to terms and residuals (amount one has to pay at the end of the lease)
The amount leased is the purchase price
Repayments and the residual attract GST.
Generally with a lease the monthly lease cost is based on the purchase price of the item/product/vehicle (less an allowance for GST). The terms range from 1-5 years with a residual at the end of the term.
Under the definition of a lease you gain no equity in the item/product/vehicle. The item/product/vehicle may be purchased at any time during the contract by paying out the lease contract in full.
Generally contracts are structured with a regular monthly payments. Finance companies prefer these payments to be made via a direct debit system from your bank account on a specific date on each month. This saves you cost in late payment fees and charges and additional interest and also saves the finance company chasing people each month for payment.
These payments also vary depending on the term, the residual (the final agreed value payment or percentage of the purchase price) and the duties/taxes applicable to each state.
Rent Lease Group can structure the payment to suit the needs of each business by either taking the lease contract out over a longer period of time and or increasing the size of the residual.
You must be careful to ensure that the term of your contract is in sync with the depreciation schedule for each item as set out by the Australian Taxation Office. Please refer to Rent Lease Group for the terms on each specific item. For further information email or call Rent Lease Group on 1300 309 806.
When selecting your finance broker you must also be careful that they stick to the letter of the law with regard to these items. If not the onus of taxation and liabilities falls on YOU, the holder of the Lease contract.
The definitions of the finance products listed here are very broad, before entering into any contract we recommend you seek independent advice from your accountant. This will ensure you choose the right product for your requirements.
If you would like more information please call Rent Lease Group now on 1300 309 806 (Australia) or click here to have a representative contact you as soon as possible.