A Finance Lease can be an attractive finance option if you use the 'cash' method of accounting for the Goods and Services Tax (GST). With a finance lease, the amount financed excludes the GST component of the asset’s purchase price which is claimed back by the financier.
This means you are financing the ex GST price, reducing the amount borrowed. GST is charged on your monthly repayments which can be claimed back on your next Business Activity Statements over the term of the finance contract.
Under a lease agreement, the lessee pays the rental but does not obtain ownership or equity in the vehicle. The lessor retains ownership of the vehicle, while the lessee assumes the risk of the residual value.
Under a finance lease, the lessee is responsible for all maintenance and running costs of the vehicle. Finance lease rentals are subject to GST, as is the residual value of the motor vehicle. At the end of the lease the lessee has the option of:
A finance lease allows the lessee to select a lease term and repayments to suit their cash flow. Lease rentals and residual values can be negotiated within a range set out under ATO guidelines.
The lease rental will be tax deductible to the extent of the business use and if a motor vehicle, whether the cost price exceeds the Luxury Car Price Limit ($57,180 in 2008/2009).