What is a car lease?
Otherwise known as a finance lease, if you’re using your vehicle mainly for business purposes, a car lease effectively works like a long-term rental.
How does a car lease work?
The lender purchases the vehicle on your behalf, and then leases it back to you. You’ll pay a fixed monthly lease rental for the term of the lease.
When the lease comes to an end, you’ll be given the option to purchase the vehicle by paying a final lump sum (the residual value) directly to the finance company, restart another lease to pay off the remaining balance on the vehicle or trade the vehicle in.
What else do I need to know?
- 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
- As the GST contained in the car's purchase price may be claimed back by the lender, only the vehicle's price exclusive of GST is financed, lowering monthly payments*
* Please refer to your accountant for eligibility.
Common questions about a car lease
Who should choose a car lease?
If you’re using a vehicle for business purposes more than 50% of the time but you’re unable or don’t want a chattel mortgage or commercial hire purchase, a car lease may be right for you.
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?
There is potential to claim tax deductions on your car lease depending on the depreciation limit set, speak to your accountant for more information.
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