Tax and GST Facts

In determining the correct finance product it is important to understand the tax and GST implications for you and your business. Making the correct decision at this stage could save you thousands of dollars further down the line.

Lease, Commercial Hire Purchase & Chattel Mortgages are the most popular types of finance.

Finance Lease:

Brief Explanation:

The finance company retains ownership of the equipment until the lease period expires at which time the payment of a residual value is due. A residual value is an estimated value of the goods at the end of the lease period. The customer pays regular payments over the term of the Finance Lease.

With a Finance Lease the risk associated with the residual value rests with the lessee (the customer) and not with the finance company.

Once the residual amount is paid, ownership passes to the lessee.

The customer cannot pay a deposit on a Finance Lease.

Tax & GST Treatment:

The lease payments are fully tax deductible provided that the equipment is utilised for the production of income.
GST is paid monthly (not on initial purchase) and claimable through the business BAS process

* For more information please discuss with your accountant or tax advisor.

Operating Lease (Rental):

The lessee (customer) can enjoy the benefits of using the equipment without the responsibility of ownership. Operating Leases are popular for equipment that has a high technological obsolescence, such as IT equipment and telephone systems. An Operating Lease helps to conserve working capital and no residual or balloon payment is made at the end of the lease. At the completion of the rental period the customer has a number of choices:

hand the equipment back to the finance company
make an offer to purchase the equipment
you can continue to rent the equipment

Tax & GST Treatment:

Rental payments are fully tax deductible

* For more information please discuss with your accountant or tax advisor

Commercial Hire Purchase (CHP):

Ideal for customers buying equipment for their business and who want full ownership of the asset at the end of the finance period. The equipment is carried as an Asset and the loan as a Liability on the balance sheet.

The customer effectively purchases the asset by making a series of stipulated payments over an agreed period. On making the final payment the customer gains 100% ownership of the asset.

More flexible then a lease as the customer can pay a deposit or seek a zero residual.

Tax & GST Treatment:

The interest component of loan repayments is tax deductible and the equipment can be depreciated as per the Australian Tax Office (ATO) guidelines.

* For more information please discuss with your accountant or tax advisor

Chattel Mortgage:

Provides immediate ownership of the equipment however the finance company retain title until the final payment (hence the word 'mortgage').

A balloon or residual payment is possible as is a deposit or trade-in. These offer attractive ways to reduce monthly repayment committments. A Chattel Mortgage provides customers an ability to tailor the contract to suit their needs

Tax & GST Treatment:

GST is charged on the purchase price of the equipment but not the monthly instalment or residual (final instalment)

If registered for GST the customer can claim some or all of the GST as soon as they lodge their next BAS rather than over the entire term of the loan

Customer can claim the interest component of payments and depreciation in accordance with the Australian Tax Office (ATO) guidelines

* For more information please discuss with your accountant or tax advisor.

Disclaimer:

No Doc Sales Assist does not provide tax or accounting advice. The product descriptions above are for information purposes only. Please seek independent advice to ensure that you have the most appropriate finance solution for your business needs.

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