The financier purchases the equipment on behalf of the customer, who then pays the financier a fixed monthly lease rental for the term of the lease.
At the end of the lease the customer can either, pay a residual on the lease and take ownership of the equipment, sell the equipment or re-finance the residual and continue the lease.
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Benefits of a Capital Lease
Flexible contract terms
Fixed interest rates
Fixed monthly lease rentals
Costs are known in advance
A residual can be applied to a lease, lowering monthly payments
Your equipment does not sit "on your books" as an asset/liability
Tax deductions for the lease payments can be claimed
As the GST contained in the vehicle's purchase price is claimed back by the financier, only the equipment's price exclusive of GST is financed, lowering monthly payments
Ability to make advance lease payments for tax deduction or cash-flow purposes
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Tax implications of an Asset Lease
GST is charged on the monthly lease rental and on the residual value at the end of the lease. Where the customer is registered for GST, they can claim some or all of the GST contained in the lease rental and the residual value as an input credit on their next Business Activity Statement.
