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Finance

A Finance Lease can also be known as an Asset Lease or Vehicle Lease

What is a Car Lease?

A Car Lease or Finance Lease is a commercial finance product which enables the customer to have the use of a car or commercial vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle.

Please note: If you are looking for information on a range of car finance options, please select: business car finance or personal car finance. ‘Car Lease’ or ‘Finance Lease’ is the name of a specific type of commercial car finance product.

A Finance Lease can also be known as an Asset Lease or Vehicle Lease.

How does a Car Lease work?

The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease. At the end of the lease the customer can either pay a residual value (final installment) on the lease and take ownership of the car, trade it in, or re-finance the residual and continue the lease.

Benefits of a Car Lease

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • Fixed interest rate
  • Fixed monthly lease rentals
  • Costs are known in advance
  • A residual can be applied to a lease, lowering monthly payments
  • Tax deductions are available when the vehicle is used for business purposes
  • As the GST contained in the car’s purchase price is claimed back by the financier, only the vehicle’s price exclusive of GST is financed, which in turn lowers monthly payments
  • Ability to make advance lease payments for tax deduction or cash-flow purposes
  • The lease is secured against the vehicle, allowing lower interest rates
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Car Lease suit?

Car Leasing is suitable for companies, partnerships, sole traders and individuals where the leased vehicle is used for income producing purposes. It is also ideal for employees who want to salary package a vehicle through a Novated Lease as part of their remuneration.

Tax implications of a Car Lease

GST is charged on the monthly lease rental and on the residual value at the end of the lease. Where the customer is registered for GST, they can claim some or all of the GST contained in the lease rental, and the residual value as an input credit on their next Business Activity Statement (BAS). Where the amount financed is below the Depreciation Limit the customer claims the lease rental as a tax deduction. Where the amount financed is above the Depreciation Limit, interest charges on the lease and depreciation up to the value of the Depreciation Limit can be claimed.

How does a Commercial Hire Purchase work?

Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase the car on behalf of the customer, and then hire it back to them over a set period of time. The customer has the use of the vehicle for the term of the contract but is not the owner of the vehicle. At the end of the contract term when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.

Benefits of a Commercial Hire Purchase

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • Fixed interest rate
  • Fixed monthly lease rentals
  • Costs are known in advance
  • A residual can be applied to a lease, lowering monthly payments
  • Tax deductions are available when the vehicle is used for business purposes
  • As the GST contained in the car’s purchase price is claimed back by the financier, only the vehicle’s price exclusive of GST is financed, which in turn lowers monthly payments
  • Ability to make advance lease payments for tax deduction or cash-flow purposes
  • The lease is secured against the vehicle, allowing lower interest rates
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Commercial Hire Purchase suit?

A Commercial Hire Purchase (CHP) may be suitable for businesses (including companies, partnerships and sole traders) who account for GST on either an Accruals or Cash basis. Prior to 1 July 2012, CHP were commonly used by individuals receiving a car allowance who used their vehicle predominantly for business purposes. However, due to changes to the GST treatment of CHP that came into effect on 1 July 2012 a CHP is now significantly less attractive. As such, employees with a car allowance may wish to consider other finance options (below).

Tax implications of a Car Lease

Under a Commercial Hire Purchase agreement, GST is payable on the purchase price of the vehicle and also on all term charges and any fees. These GST charges are payable upon settlement of the contract, and can either be added to the loan or paid up-front. Businesses using either the Cash or Accruals accounting method (and registered for GST) can claim the GST paid on the purchase price of the vehicle up-front when they lodge their next BAS. Additionally, the GST charged on the interest (term charges) and any fees can be claimed back as Input Tax Credit progressively over the life of the loan. Where the vehicle is used for business purposes, the hirer can claim depreciation up to the Depreciation Limit and interest charges on the contract as a tax deduction.

Commercial Hire Purchase (CHP)

A Commercial Hire Purchase (CHP) is a commercial finance product where the customer hires the vehicle from the financier for a fixed monthly repayment over a set period of time. Commercial Hire Purchase can also be known as a Corporate Hire Purchase, Hire Purchase or Offer To Hire, and is often abbreviated as CHP or HP.

What is a Car Lease?

A Car Lease or Finance Lease is a commercial finance product which enables the customer to have the use of a car or commercial vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle.

Please note: If you are looking for information on a range of car finance options, please select: business car finance or personal car finance. ‘Car Lease’ or ‘Finance Lease’ is the name of a specific type of commercial car finance product.

A Finance Lease can also be known as an Asset Lease or Vehicle Lease.

How does a Car Lease work?

The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease. At the end of the lease the customer can either pay a residual value (final installment) on the lease and take ownership of the car, trade it in, or re-finance the residual and continue the lease.

Benefits of a Car Lease

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • Fixed interest rate
  • Fixed monthly lease rentals
  • Costs are known in advance
  • A residual can be applied to a lease, lowering monthly payments
  • Tax deductions are available when the vehicle is used for business purposes
  • As the GST contained in the car’s purchase price is claimed back by the financier, only the vehicle’s price exclusive of GST is financed, which in turn lowers monthly payments
  • Ability to make advance lease payments for tax deduction or cash-flow purposes
  • The lease is secured against the vehicle, allowing lower interest rates
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Car Lease suit?

Car Leasing is suitable for companies, partnerships, sole traders and individuals where the leased vehicle is used for income producing purposes. It is also ideal for employees who want to salary package a vehicle through a Novated Lease as part of their remuneration.

Tax implications of a Car Lease

GST is charged on the monthly lease rental and on the residual value at the end of the lease. Where the customer is registered for GST, they can claim some or all of the GST contained in the lease rental, and the residual value as an input credit on their next Business Activity Statement (BAS). Where the amount financed is below the Depreciation Limit the customer claims the lease rental as a tax deduction. Where the amount financed is above the Depreciation Limit, interest charges on the lease and depreciation up to the value of the Depreciation Limit can be claimed.

Commercial Hire Purchase (CHP)

A Commercial Hire Purchase (CHP) is a commercial finance product where the customer hires the vehicle from the financier for a fixed monthly repayment over a set period of time. Commercial Hire Purchase can also be known as a Corporate Hire Purchase, Hire Purchase or Offer To Hire, and is often abbreviated as CHP or HP.

How does a Commercial Hire Purchase work?

Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase the car on behalf of the customer, and then hire it back to them over a set period of time. The customer has the use of the vehicle for the term of the contract but is not the owner of the vehicle. At the end of the contract term when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.

Benefits of a Commercial Hire Purchase

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • Fixed interest rate
  • Fixed monthly lease rentals
  • Costs are known in advance
  • A residual can be applied to a lease, lowering monthly payments
  • Tax deductions are available when the vehicle is used for business purposes
  • As the GST contained in the car’s purchase price is claimed back by the financier, only the vehicle’s price exclusive of GST is financed, which in turn lowers monthly payments
  • Ability to make advance lease payments for tax deduction or cash-flow purposes
  • The lease is secured against the vehicle, allowing lower interest rates
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Commercial Hire Purchase suit?

A Commercial Hire Purchase (CHP) may be suitable for businesses (including companies, partnerships and sole traders) who account for GST on either an Accruals or Cash basis. Prior to 1 July 2012, CHP were commonly used by individuals receiving a car allowance who used their vehicle predominantly for business purposes. However, due to changes to the GST treatment of CHP that came into effect on 1 July 2012 a CHP is now significantly less attractive. As such, employees with a car allowance may wish to consider other finance options (below).

Tax implications of a Car Lease

Under a Commercial Hire Purchase agreement, GST is payable on the purchase price of the vehicle and also on all term charges and any fees. These GST charges are payable upon settlement of the contract, and can either be added to the loan or paid up-front. Businesses using either the Cash or Accruals accounting method (and registered for GST) can claim the GST paid on the purchase price of the vehicle up-front when they lodge their next BAS. Additionally, the GST charged on the interest (term charges) and any fees can be claimed back as Input Tax Credit progressively over the life of the loan. Where the vehicle is used for business purposes, the hirer can claim depreciation up to the Depreciation Limit and interest charges on the contract as a tax deduction.

Chattel Mortgage

Under a Chattel Mortgage the customer takes ownership of the equipment (chattel) at the time of purchase

How does a Chattel Mortgage work?

Under a Chattel Mortgage the financier advances funds to the customer to purchase business equipment, and the customer takes ownership of the equipment (chattel) at the time of purchase.

The financier then takes a mortgage over the equipment as security for the loan.

Once the contract is completed, the mortgage is removed giving the customer clear title to the equipment.

Benefits of a Chattel Mortgage

  • Flexible contract terms
  • Fixed interest rates
  • Fixed monthly lease rentals
  • Costs are known in advance
  • Deposit (either cash or trade-in) may be used
  • A residual can be applied to contract, lowering monthly payments
  • Tax deductions can be claimed for depreciation of the equipment
  • Customers registered for GST can claim the GST in the equipment’s price
  • Ability to structure your repayments to suit cash-flow trends

Tax implications of a Chattel Mortgage

GST is charged in the purchase price of the equipment but not the monthly rental or the contract balloon (final installment).

Where the customer is registered for GST, they can claim some or all of the GST contained in the equipment’s price as soon as they lodge their next BAS, rather than over the term of the loan.

Under a Chattel Mortgage the customer can claim the depreciation of the equipment as a tax deduction.