cars, utes

Hansy Mannil Jul 10, 2023

What is 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?

Other options to consider if you’re looking to finance your vehicle include a chattel mortgage and a commercial hire purpose.

To discuss your individual needs in detail and secure the right finance option for you, speak to one of the Stratton Finance team on 1300 787 288.

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.

What are the benefits of a car lease?

Benefits of a car lease include:

  • The option to reduce monthly repayments by setting a final balance (residual value) payment
  • Flexible loan repayment periods, ranging from two to five years
  • The potential to claim tax deductions if the car is being used for business purposes
  • Zero GST charges on the original purchase price of the car
  • Lower interest rates, thanks to the loan being secured against the vehicle

A car lease taken out with Stratton Finance also comes with these additional benefits (subject to lender selection):

  • Option of no ongoing fees
  • Fixed interest rate and monthly repayments for the duration of the loan
  • The option to make advance payments for tax or cash-flow purposes
  • Quotes and approvals available online

What is a car lease and how does it work?

Aimed at customers who will mainly be using their vehicle for business purposes, a car lease effectively works like a long-term rental. A finance company will purchase a car on your behalf and then lease the vehicle back to you for an agreed monthly fee.

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.

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