K R Consulting

Finance Lease

Purpose: A finance Lease is a rental agreement, where the finance company purchases the goods for you and you rent it from them for an agreed monthly repayment. The financier owns the goods at the end of the agreement. It is important to note that there is no option for you to purchase the goods either during or at the end of the agreement. However, most finance companies will consider an offer from you to purchase the goods for the residual value at the end of the lease term.

Term: The term of the finance agreement can be from 1- 5 years and must be in accordance with ATO Guidelines.

Deposits: Deposits are not required. The full purchase price must be financed.

Residual/Balloon: You must have a residual payment as the last payment of your finance agreement according to Australian Taxation (ATO) Guidelines. This varies between 25% to 65%. This amount usually represents the approximate value of the goods at the end of the lease. A residual payment allows for lower monthly payments and leaves you with more working capital to run your business.

Lease agreement sets out the:

  • residual value of the goods
  • term of the lease in months
  • monthly rental
  • depreciation rate

Ownership:The finance company retains legal title during and after the term of the agreement. However, in most cases, the finance company will usually consider your offer to purchase the goods at the agreed residual value at the end of the lease term.

Accounting Benefits: The monthly rental payments are 100% tax deductible, provided the goods are solely used for business purposes. The amount financed is exclusive of GST (the financier covers this cost as they are purchasing the goods for you). The monthly rental payments are subject to GST and stamp duty. The residual value and early termination are also subject to GST. The goods need to be shown on the balance sheet as both an asset and liability.

The Equipment loans market is very competitive. If you have any questions that we can help you with, please call at any time on 1300 79 63 69 or click on the Make an Obligation Free Enquiry link below and one of our experienced consultants will be in touch with you within 24 hours.