What is a novated lease?
A lease based on an agreement between you, your employer and your financer that deducts the payments from your pre-taxed salary package, which in turn reduces your income tax.
What is a tax break?
Taxbreak is a refined version of a Novated Lease that creates more benefits for customers leasing for business use, by optimally upgrading and replacing your vehicle as it depreciates, at the most optimal time.
What is Commercial Hire Purchase (CHP)?
A commercial hire purchase (CHP) is a commercial finance product where you hire the vehicle from the lender for a fixed monthly repayment over a set period. Otherwise known as corporate hire purchase, hire purchase or offer to hire. It’s a good choice if you are registered for GST on an accruals or cash accounting basis.
How does commercial hire purchase work?
The lender agrees to purchase the vehicle on your behalf and then hires it back to you over a set period. You’ll have full use of the vehicle for the term of the contract, you just won’t be the owner. At the end of the term, when the total price of the vehicle (minus any balloon/residual amount) and the interest charges have been paid in full, the customer takes ownership of the car.
What else do I need to know?
- Flexible contract terms ranging from 12 to 60 months (one to five years)
- Balloon / Residual value (or final instalment) may be placed on contract
- A tax deduction may be available when the vehicle is used for business purposes*
- GST is not charged on the monthly instalment or residual payment (but is charged on fees and interest)
- Customers registered for GST may be able to claim the GST in the vehicle price, fees and interest*
* Please refer to your accountant for eligibility.
What is a Specific Security Agreement (formerly known as a Chattel Mortgage)?
A specific security agreement (formally known as a chattel mortgage) involves a finance company lending you money to purchase a vehicle that will be primarily used for business purposes. Set repayments are then made on a monthly basis. You’ll own the vehicle outright, however, the finance company will place a “mortgage” over the vehicle, as security against the loan.
Once the loan and any Balloon/Residual Value (the final balance on the vehicle) has been repaid, the finance company will remove the mortgage. Alternatively, you can choose to re-finance the Balloon/Residual Value or trade the vehicle in.
How does a specific security agreement work?
The lender will provide the funds for you to purchase the chattel and you’ll take ownership at the time of purchase. The lender takes a ‘mortgage’ over the chattel as security for the loan. Once the contract is completed, you’ll own the chattel outright.
What else do I need to know?
- You own the financed chattel up front so it appears as an asset on your balance sheet as well as the finance showing as a liability
- A tax deduction may be available when the vehicle is used for business purposes*
- A customer who is registered for GST may claim the GST contained in the vehicle price as an input credit on their next Business Activity Statement (BAS)*
* Please refer to your accountant for eligibility.
Tax implications?
With a specific security agreement, the goods and services tax (GST) inclusive purchase price of the car or chattel is financed and you’re entitled to claim an input tax credit up front.
You may also be able to claim interest and depreciation costs depending on how much you use your car or equipment for business use.
It’s a good idea to seek advice from your accountant regarding your circumstances and tax impacts.
What’s a balloon/residual payment?
A balloon or residual payment amount is an amount that is not paid off until the end of your agreement. The higher the balloon/residual payment, the lower your monthly repayments.
Keep in mind that higher balloon/residual payments will increase the amount of interest you pay over the loan period, as you won’t be paying down the principal as quickly.
You might choose to have a balloon/residual payment if you prefer to keep repayments lower for cash flow purposes.
It’s important to make sure any balloon/residual payment you agree to is likely to be manageable at the end in case you want to simply sell the asset and pay off the finance.
Are there other considerations?
As with all financing agreements, it’s important to measure up how long you expect to use the equipment or vehicle in your business, its effective life and your cash flow expectations.
The best possible finance package comes down to negotiating both the cost of the vehicle or equipment and the finance charges. Saving money on financing business equipment can often come down to the amount you are financing and total repayments, not necessarily the cheapest interest rate. Make sure you consider both of these as separate items when comparing your options.
It’s also important to find out if there are any additional fees and charges or any monthly fees charged for setting up the finance and managing it during the term.
What is a car lease or finance lease?
While it’s easy to think of a lease as something akin to a very long rental agreement, there’s a little more to it than that.
Also known as an – Finance Lease, Asset Lease, Vehicle Lease, or Car Lease, a lease is a form of finance that allows a customer (that’s you if you’re a business owner) the use of a commercial vehicle, a car, or any “depreciable” asset while enjoying all the benefits of ownership. However, technically the financier owns the vehicle or asset until you finish your lease term and pay the necessary residual payment.
You pay less
If you decide against buying a chattel or vehicle outright then you don’t need to pay the residual which effectively means that you’re paying less for the use of a car. But that’s not all. The financier is entitled to claim back the GST from the purchase price of the car, so your lease agreement (and monthly payments) are calculated on the value of the car before GST is added. And that means that you pay less which leads us to your next benefit.
You can claim GST paid as an input credit
The GST is taken off the price of the car in order to calculate your payments, you still have to pay it at some point. The monthly lease rental and the residual payment will have GST charged on them but (and it’s a pretty big ‘but’) if you are registered for GST then you can claim some or even all of the GST that’s in your lease as an input credit your next Business Activity Statement. And what does that mean? It means more money in your pocket of course.
So how can I get one of these finance lease agreements?
First off, a finance lease is best suited to people that run their own business or companies that use the vehicle primarily for business-related purposes. (greater than 50%)
If that sounds like you (or your company), then all you have to do is get in touch with us on 1300 134 646, and we can set the ball rolling.
Now, if you’re an employee don’t worry, you can still opt for a form of car leasing called a Novated lease. This is where your vehicle comes as part of your remuneration package from your employer and your payments are deducted from your salary.
So, what are you waiting for?
Get in touch today, and we’ll help you decide what financing option best suits your needs and get you on the road asap.
What is a car allowance?
Usually a set amount of money allocated for you to use as upkeep and maintenance of your vehicle. Commonly includes a fuel card and left over money.