K R Consulting

Operating Lease

Purpose: An Operating Lease, Equipment Rental or Rental Agreement is a versatile option for financing high depreciation, short life-span new technologies such as computers, telephony and all other office equipment which generally have a short lifespan due to high obsolescence. The financier purchases the equipment and rents it to you for an agreed payment schedule over a fixed term. Whilst similar to a Finance Lease, an Operating Lease has greater flexibility.

Term: The term of finance agreement can be from 1 - 5 years and must be in accordance to 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 ATO Guidelines. This residual value is determined by the financier and the financier is responsible for paying it. Be aware that the residual values are generally not disclosed to you.

Ownership: You have possession and use of the equipment, however, the finance company shoulders most of the risk of ownership.

At the end of the Rental Period, you have a number of options:

  • Return the goods to the finance company, without any responsibility for loss incurred by the finance company for the re-sale.
  • Return the goods to the finance company and enter into another agreement on new upgraded equipment.
  • Purchase the equipment at a fair market value (usually very low due to the high depreciation of the equipment).
  • Re-rent the goods at a lower rate for a further term

Accounting Benefits: Rental payments are 100% tax deductible because they are treated purely as an operating expense - the equipment must be used solely for business purposes. Rentals do not appear on the balance sheet, therefore there is no contingent liability. Rental payments are subject to GST, with the amount financed being exclusive of GST.

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.