A car lease is a commercial finance product that enables a client to have the use of a vehicle along with the benefits of ownership while the financier retains actual ownership of the vehicle.
The financier purchases the vehicle on behalf of the client, who then leases the vehicle from the financier. The client pays a fixed monthly lease rental for the term of the lease.
At the end of the lease the client can pay the residual to the financier and take ownership of the vehicle, trade it in or re-finance the residual and continue the lease.
Car leasing is suitable for companies, partnerships, sole traders and individuals where the leased vehicle is used for income producing purposes. GST is charged on the monthly lease rental and on the residual value at the end of the lease. Where the client 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.
Where the amount financed is below the depreciation limit the customer claims the lease rental as a tax deduction. Above the depreciation limit, interest charges on the lease and depreciation up to the value of the depreciation limit can be claimed. Vehicle leasing has the advantages of:
- flexible contract terms ranging from two to five years
- fixed interest rate and monthly lease payments
- ease of budgeting by calculating costs in advance
- ability to lower repayments by adjusting residual
- tax reduction
- lower monthly payments on the car value because the GST is claimed back by the financier
- flexibility of making advance lease payments for tax deduction or cash-flow purposes
- lower interest rates by securing the lease against the vehicle.