An Operating Lease is an off balance sheet option to lease a motor vehicle. The finance provider purchases the motor vehicle and rents it to the person for a monthly rental payment.
At the end of the Operating Lease term, the vehicle is simply returned to the finance provider in good condition at which time the finance obligation ends.
An Operating Lease is simple, choose a vehicle, decide on the term, (normally 3 to 5 years) work out how many kilometres you will travel per year. Pay a monthly lease payment and the end of the term, hand the vehicle back to the financer provider.
If the amount to be financed is below the ATO depreciation limit, (currently $57,180) you may claim the full lease rental as a tax deduction. Above the depreciation limit, it’s similar to a commercial hire purchase agreement where the interest and depreciation up to the vehicle’s value can be claimed.
GST will be charged on the monthly payments; however it can be claimed back on the Business Activity Statement (BAS) over the term of the Operating Lease.
The monthly repayment or balloon amount is subject to GST.
An Operating Lease suits someone who is going to use a vehicle predominately for business use, therefore this vehicle financing product is used by companies, trusts, sole traders, partnerships and ABN holders.
* Information contained within this article is correct at time of writing and is general information only. This should not be taken as financial advice.
