Under a finance lease arrangement, the lender (or “lessor”) purchases an asset on behalf of a business (the “lessee”) for a fixed interest rate and pre-determined term. The lender maintains the ownership of the asset while the business utilises the asset over the life of the lease arrangement.
At the end of the term there is an option to purchase the asset for a predefined amount – termed the residual value. However, if you wish you can return the equipment back to the lender.
The amount financed is calculated on the asset cost less GST in most circumstances, the monthly rental amount is then subject to GST. These payments are sometimes fully tax deductible depending on your tax status and circumstance of the business.
Key Benefits of a Finance Lease
Ability to purchase the asset at the end of the term or hand back to the lender
Repayments may be fully tax deductible
Equipment is used as security
No ownership obligations