Lease

By definition, this type of Finance is based on the owner of goods making those goods available to another party, for a rent payment. In effect, the Lender will acquire goods on behalf of a client and “rent” those goods to the client (Lessee) for a specified term, at specified rental installments. The Lender (Lessor) retains the ownership of the goods.

Whether expanding, upgrading or refinancing, a finance Lease facility allows the acquisition of required capital equipment without using operating capital for funding.

Overview:

Advantages:

Conserves Working Capital

• Allows the acquisition of required capital equipment without using operating capital for funding.

Flexibility

• Select the length of the finance contract and structure the repayments to suit cashflow.
• The term of the finance contract will be matched to the expected life of the asset, ensuring that payments are not being made on equipment that is no longer contributing towards income.
• Cash outflow (money paid) can be varied to match cash inflow (money coming into your business)

Tax Treatment

• Instalments are treated as a “rental” and therefore do not comprise “principal & interest".
• The GST component of the acquired asset is not financed, but GST applies to the monthly instalment and residual values. Eligible borrowers can claim the GST as an ITC.
• The instalment itself is treated as an “expense” and tax deductibility will be determined by the extent to which goods are being used to generate assessable income.

Variations of finance Lease are:

• Novated Lease (salary packaging)
• Operating Lease
• Rental Finance

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