Rental Finance

This is a variation of a finance Lease and as the name suggests, this type of finance means a client simply hires goods for a specified term. This form of financing is particularly appropriate for IT or office equipment, which generally has a rapid depreciation in value.

For example, with technology moving ahead so fast, computer goods purchased today are virtually obsolete in 3 years time. Keeping up with the pace of technology changes can be difficult, not to mention extremely costly. However, it becomes increasingly difficult to operate a business with obsolete equipment.

In most cases, businesses do not work towards owning such goods. Since these types of
goods are required for income generating purposes; it makes sense to structure payments
over the productive life of goods, then update them when they are no longer commercially
viable. Rental Finance allows just that.

Overview:

Amount of Finance

  • generally from $5,000 with total (100%) of the total cost (excluding GST) being financed

Term of Finance

  • generally 3 years

* (may vary from 1-5 years depending upon the nature of the goods)

Residual Value
(Balloon Payment)

  • payment structure is determined by ATO guidelines, particularly regarding residual value of the asset

Repayments

  • monthly payments are fixed for the duration of the term

  • payments attract GST

Nature of Goods

  • usually new plant or equipment (particularly computer / IT goods)

Advantages:

Greater Flexibility

  • Unlike a loan or finance lease, goods can be updated at any time, often without incurring any significant increase in the monthly rental payment

  • In most cases, equipment can be added and the Rental Agreement is modified (subject to approval).

 “Off Balance Sheet”
Funding

  • Under a Rental Agreement, the monthly payments are treated as an operating expense and are generally Tax deductible

Tax Deductibility

  • Instalments are treated as a “rental” and therefore do not comprise “principal & interest".

  • 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.

  • 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.

End of Term Options:

When the Agreement matures, a range of options is available:

  • Continue to rent at the same rental amount, or re-rent for a further fixed term at a reduced rental

  • Upgrade to the latest technology.

  • Return equipment with no residual obligation

  • Offer to purchase the equipment at fair market value

Need more information?

Contact us and we'll be happy to answer any questions or
provide further details.

Call us today on (03) 9005-6633 and experience the difference!

T (03) 9005 6633
E mail@creditlinkaustralia.com.au
A 1355 High St Malvern Vic 3144

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