What is a car lease?
A Car Lease or Finance Lease is a commercial finance product which enables the customer to have the use of a car or commercial vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle.
A Finance Lease can also be known as an Asset Lease or Vehicle Lease.
How does a car lease work?
The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease.
At the end of the lease the customer can either pay a residual value (final instalment) on the lease and take ownership of the car, trade it in or re-finance the residual and continue the lease.
- Flexible contract terms ranging from 12 to 60 months (one to five years)
- A residual can be applied to a lease, lowering monthly payments
- Fixed interest rate and monthly lease rentals
- Tax deductions may be available when the vehicle is used for business purposes
- As the GST contained in the car's purchase price may be claimed back by the financier, only the vehicle's price exclusive of GST is financed, lowering monthly payments*
- Ability to make advance lease payments for tax deduction or cash-flow purposes
* Please refer to your accountant for eligibility.
Common questions about a car lease
Who should choose a car lease?
A car lease is a good choice for anyone who will be using the vehicle for business purposes at least 50 per cent of the time, as you may be able to claim the monthly leasing costs as a tax deduction.
A car lease may also be a good option for employees who are able to include their vehicle as part of a salary sacrifice scheme via a novated lease.
What alternatives are there to a car lease?
What happens if you decide to purchase the vehicle at the end of the car lease?
If you decide you want to buy your vehicle at the end of the car lease, this is technically treated as the finance company selling the vehicle to you. You’ll pay an amount equal to the remaining balance on the car – the Residual Value – plus GST.
Businesses registered for GST will be able to claim an Input Tax Credit for any GST paid as part of the purchase.
What tax and GST can I expect to pay on a car lease?
GST is payable on each of the monthly repayments you make on your car lease. If you choose to purchase the vehicle when your lease comes to an end, GST is also payable on the final cost balance.
If you are registered for GST, then some or all of the GST may be claimed as an Input Tax Credit on your next Business Activity Statement (BAS). Each monthly payment should be reported separately on your BAS.
If the amount of finance on the vehicle is below the depreciation limit set by the Australian Tax Office, the lease can be claimed as a tax deduction.
If the amount of finance on the vehicle is above the depreciation limit, then you can only claim a tax deduction on the lease interest charges and on the vehicle’s depreciation up to the value of the depreciation limit.
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