To run your business efficiently and compete in today’s fast-paced market, you need the latest business technology, business equipment or company car. But the true benefit to your business comes from the way you use these assets – not where they sit on your balance sheet. Many small business owners choose to lease rather than purchase their company cars because it’s better for their cash flow. Company Car Leasing frees up your working capital, and sometimes provides tax advantages. It allows you to upgrade your cars quickly, without the risk of obsolescence.
Now-a-days there are complete financing solutions for all types of business assets. From cars and earthmoving equipment to new office furniture and laptops. Everything you need to keep it all running smoothly, without using all your capital to finance it. Some of the common Company Car Lease options include:
- Car Lease
- Novated Lease
- Chattel Mortgage Finance
- Hire Purchase
Car Lease or Finance Lease A Car Lease is one of the most straight forward car financing options for a business when purchasing a new or used car. A Car Lease may require little or no deposit depending on circumstances and lease payments may be up to 100% tax deductible depending on tax status. A car lease differs from a Hire Purchase where the interest payable and depreciation is deductable. If you take out a Car Lease, the Lender agrees to rent the vehicle to you for a set period for an agreed (generally monthly) amount. If the vehicle is entirely for business purposes, the lease payments are completely tax deductible. A Car Lease (sometimes called a finance lease) is a finance product that allows customers to use a car and benefit as an owner, while the finance lender actually retains ownership of the vehicle. The Car Finance lender purchases a car on behalf of their customer (the lessee) who then pays the finance lender a fixed monthly rate to rent the vehicle until the lease has expired. At the end of the lease, the customer can choose to pay a final installment on the lease and take ownership of the car (called the residual value), trade in the vehicle for a new lease, or refinance the residual and continue to lease the same vehicle. Car Lease Residual/Balloon: You must have a residual payment as the last payment of your car lease agreement according to Australian Taxation (ATO) Guidelines. This varies between 25% to 65%. This residual value represents the approximate value of the car at the end of the lease term. A residual payment allows for lower monthly payments and leaves you with more working capital to run your business. Deposits are not required as the full purchase price must be financed.
Hire Purchase A Hire Purchase is like a Car Lease in that you pay “rent” over the repayment term. The difference is that you gain equity as you make payments and title passes to you with the last repayment. A Hire Purchase agreement can be structured with or without a “Balloon” payment ie an additional lump sum payment to be made at the end of the lease. A Hire Purchase is an agreement to purchase a car subject to payment terms to the finance lender. You will automatically own the goods when you pay the final payment, different to a car lease. You can choose to have a balloon payment as the last payment of your finance agreement. This balloon payment is usually between 0% – 50% of the cost price, but may be as low as one dollar, dependent upon the equipment. With a hire purchase arrangement, the GST liability arises at the commencement of the agreement. Even though the total amount payable under the agreement will be paid by periodic installments and ownership of the equipment will not pass to the hirer until the final repayment. The financier, being the supplier, is responsible for the payment of the GST liability. Therefore the amount financed is inclusive of GST, and your monthly repayments are not subject to GST unless you are on a cash basis for GST. (Seek advice from your accountant). You can claim the interest component of all repayments. The depreciation of the goods is fully tax deductible providing goods are used 100% for business purposes.
Chattel Mortgage Chattel Mortgage is designed especially for those sole traders partnerships and companies who account for their business on a cash basis. A Chattel Mortgage is an ideal way for individual business customers to maximise the taxation benefits gained from financing a new vehicle. Individual business customers accounting on a cash basis can claim back GST as soon as they lodge their next Business Activity Statement (BAS).
Novated Lease In recent years, a Novated Lease have become a popular alternative for businesses wishing to provide their employees with motor vehicles. A Novated Lease is effectively an agreement between the employee (a lessee), their employer and the finance provider (the lessor). It operates by creating a Finance Lease Agreement (refer to the Lease Agreement Section on this page) between the employee and the Bank. A Novation Agreement is then entered between all parties, which transfers responsibility for the lease rental commitment to the employer during the lessee’s period of employment. On the employee leaving employment, the novation ends, with ongoing responsibility for the lease returning to the employee. As motor vehicles acquired this way are leased by the employee, there are benefits for your business and your employee. These could include:
- Potential to remove the vehicle fleet from your balance sheet.
- Freedom for your employees to choose their motor vehicle while enjoying the benefits of a company car.
- Eliminating administration and maintenance costs involved in managing a fleet.
- The ability to negotiate payment of vehicle running costs with your employees.
- No on-going company responsibility for the vehicle should an employee leave.
Other features of a Company Car Lease Flexible contract structured to your business needs, Terms available 24 to 60 months, Final balloon payment facility available, Ability to structure the repayments to exactly suit your budget.
How do you do a Company Car Lease Your accountant is a useful source of advice on the type of a car your business can afford to finance through a lease, and may even be able to recommend an appropriate form of finance through a bank or other finance provider.
Some of the factors that will be taken into account when you apply for lease finance include the length of time you’ve been in business, your credit history and the profitability of your venture. You may even be asked to provide profit and loss statements from previous years as well as balance sheets when applying for a lease.
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