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What is a Vehicle Lease?

A Vehicle Lease is a rental agreement where the finance provider purchases the vehicle on behalf of the customer who in turn pays the financier a fixed monthly rental amount for the term of the car lease.

After the final payment has been paid, (residual amount which is set by the ATO) the customer takes ownership of the vehicle.

A Vehicle Lease is also known as a Finance Lease, Auto Lease, Car lease or Asset Lease.

How does a Vehicle Lease work?

The lessor obtains legal ownership of the vehicle to be leased, by paying the amount as advised on the (vendor’s) supplier’s invoice.  The lessee then has the use of the car and pays rent for that use for the term of the Vehicle Lease contract.  During the term of the Vehicle Lease agreement, the lessee merely pays rent and does not obtain ownership or equity in the car they are leasing.  Under a Vehicle Lease agreement the lessee is responsible for maintenance and running costs, car insurance and registration fees for the leased item.

Vehicle Lease Features

  1. Low establishment fees and monthly fees, no payout penalties
  2. Lease terms range from 1 to 5 years
  3. Interest rate is fixed for the term
  4. Lease monthly repayments are fixed for the term
  5. Lease repayments may be 100% tax deductible
  6. A residual may used to reduce monthly repayments
  7. GST on the purchase price of the vehicle is claimed back by the finance provider on the customer’s behalf. This lowers the amount financed to the purchase price minus the GST.
  8. GST on the monthly repayments may be claimed on BAS.

 

Possible Vehicle Lease Taxation Implications

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 is similar to a Commercial Hire Purchase agreement where the interest and depreciation up to the vehicle’s value can be claimed.

GST is charged on the monthly repayments however, it can be claimed back on a BAS over the term of the Vehicle Lease agreement.

The monthly repayment or balloon amount is subject to GST.

Who does a Vehicle Lease suit?

A Vehicle Lease suits someone who is going to use a vehicle predominately for business use; therefore this car financing product is used by Companies, Trusts, Sole Traders, Partnerships and ABN Holders.

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* Information contained within this article is correct at time of writing and is general information only. This should not be taken as financial advice.

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