Finance Lease

Finance lease option is available to sole traders, partnerships and companies that use the ‘cash’ method of accounting relating to the Goods and Services Tax (GST).

Under this method the asset is financed excluding the GST component. The GST component is claimed by the financier. This means the amount borrowed is lower to the customer because the GST has been excluded. This means GST is then charged on the monthly rental and the residual value, which can then be claimed back on the entity’s next Business Activity Statement over the course of the finance contract.

The purchaser of the asset does not obtain ownership or equity in the asset. The financier has ownership of the asset, while the purchaser takes over the risk of the residual value.

Options:

When the lease ends the purchaser has the following options.

Return the asset to the financier and bear any short fall in the residual
Payout the residual and take ownership of the asset
Refinance the residual over a new lease term

Tax Claims:

When the asset is used for business purposes and the purchaser is registered for GST the rental GST component and residual GST component can be partly or fully claimed as an Impute Tax Credit on their next Business Activity Statement. The Australian Taxation department depreciation limits must be taken into consideration. When below the limit the customer claims the lease rental as the tax deduction. When above the depreciation limit the customer can claim the interest charged on the lease and depreciation up to that depreciation limit.

(Refer to your tax accountant for all confirmation of current tax claims available).