Purpose:

Available for sole proprietors, partnerships and companies that use the 'cash' method of accounting for the Goods and Services Tax (GST).

How it Works:

The vehicle is financed excluding the GST component of the acquisition price of the motor vehicle that is claimed back by the financier. This means you are financing the ex GST price, reducing the amount borrowed, however GST is then charged on your monthly payments which can be claimed back on the entity's next Business Activity Statement over the term of the finance contract. During the term of the lease agreement the lessee pays the rental and does not obtain ownership or equity in the vehicle. The lessor retains ownership of the vehicle, while the lessee assumes the risk of the residual value.

At the end of the lease the lessee has the option of returning the vehicle to the lessor (and make up any shortfall in the residual that may occur), pay out the residual and obtain ownership of the vehicle or refinance the residual for another lease term. Under a finance lease, the lessee is responsible for all maintenance and running costs of the vehicle. Finance lease rentals are subject to GST, as is the residual value of the motor vehicle.

Benefits:

A finance lease allows the lessee to select a lease term and repayments to suit their cash flow. Lease rentals and residual values can be negotiated within an appropriate range to allow more flexibility in budgeting.

Where the vehicle is used for business purposes, the lease rental will be tax deductible. The extent of the tax deductibility will depend on the business percentage of use. The lessee (where registered for GST) will be entitled to claim back the GST paid on the lease rentals.

Other benefits include:

There is no initial outlay required from the lessee as finance is for 100% of the value of the vehicle.
The vehicle does not appear on the lessee's balance sheet.
The term of the loan ranges from 12 months to 60 months.