Leasing a Vehicle - AAP Finance Brokers

Leasing a Vehicle

Leasing is another form of finance offered by lenders when purchasing motor vehicles, trucks, vans, tractors, forklifts and other types of vehicles used in your business.

There are several different ways in how a lease is arranged, and if you are thinking about going along this path, your first point of call would be to contact your accountant to explain the different types of tax treatments for each product.

Benefits of taking out this type of finance

  • the ability to manage your cash flow as you don’t have to tie up your day-to-day cash flow
  • the vehicle being purchased is normally sufficient security for the finance, so your other business assets are not required by security.
  • Loan repayments can be arranged over terms of 1-5 years although some finance company’s can offer longer terms.
  • Balloon payments can be arranged at the end of the leasing term to further reduce leasing repayments.
  • Interest rates are fixed once your contract starts, giving your business certainty when it comes to forecasting and managing budgets

Types of Finance

1. Finance Lease

With this option, the leasing company purchases the vehicle and then leases it to you. You then enjoy the use of the vehicle or equipment for an agreed time in return for rental repayments. When the lease expires you can choose to:

  • return the vehicle to the leasing company who can sell it in the market place. If you do this you will need to make up any shortfall if the net sale was less than the agreed residual value.
  • or make an offer to the finance company to purchase the vehicle

Rental payments may be fully tax deductible if the equipment is used solely for earning assessable income. Speak to your accountant for further information about tax benefits.

The benefit of taking out this type of product helps you to manage your cash flow as repayments can be tailored over terms up to 5 years and you can free up security, as the vehicle would be used to secure the debt.

2. Chattel Mortgages

This is an effective way to finance a vehicle for business use. You own the vehicle, which is then used as security.

There may be tax benefits if the financed vehicle is used to produce assessable income. Speak to your accountant to discuss your particular circumstances.

3. Novated Leases

Businesses can offer employee’s of receiving a car as part of their salary package arrangement. Your business pays the leasing or rental payments to the leasing company and the employee enjoys the full use of the vehicle. Novated leases work as follows:

  • The employee chooses a car and leases it from the leasing company.
  • The employee then novates the lease to their employer, who assumes some of the employee’s rights and obligations under the lease, including responsibility of meeting the lease rentals as part of their salary package for as long as the employee remains with the employer.
  • The employee remains the registered owner throughout the lease and the contract is in their name.
  • If the employee leaves the company, the car remains with the business. In this situation generally the employee or their new employer takes over the payments.
  • The original employer is not left with an unwanted car and the employee keeps the vehicle.
  • Vehicle running costs are excluded from a Novated Lease.