The finance tool that saves capital reserves.
This is a rental agreement where the financier purchases the asset for you, and you pay the financier for use of the goods. Deposits are not required and ownership of the asset only becomes yours when you pay out the residual payment at the end of the lease term. Terms are generally from one to five years and repayments are calculated based on the net asset value of the item. There must be a residual value at the end of the term that represents the realistic value of the used item.
Advantages and applications.
A Finance lease means you get to use a piece of equipment for a low monthly amount, without having to tie up your business’s capital reserves.
• Manufacturing machinery and plant.
• Cars, trucks and commercial vehicles.
• Computers and IT systems.
• Earthmoving and construction equipment.
When the item is first acquired, the GST is paid by the financier who pays the input tax credit. As the borrower, you also claim the GST on the monthly installments with each BAS return.You can claim the entire monthly payment as a tax deduction with a finance lease. The residual or ‘balloon’ must be in accordance with ATO guidelines and will generally be 25-65% of the equipment’s purchase price.