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What
is it?
- The long-term
hire of plant and equipment where the lessor (finance company) allows
the lessee (operator) to use the plant for an agreed hire period at
an agreed rental.
- A finance lease
transfers substantially all the risks and rewards of ownership of
the plant to the lessee.
- The future or
residual value is agreed between the lessor and lessee upfront. The
lessor receives rentals from the lessee to amortise the loan down
to the residual value, the value of which is guaranteed by the lessee.
- Terms are negotiable,
but operators usually pay monthly rentals in advance.
- A Finance lease
is accounted for 'on balance sheet'.
- The lease is
a genuine lease for tax purposes and so depreciation is claimed by
the lessor while the rental is deductible to the lessee.
- The lessee is
responsible for insuring and maintaining the plant and equipment.
- GST is charged
on each lease rental with the lessee claiming an input tax credit
back if eligible.
Benefits
- Known budgetable
rentals.
- Preserves working
capital -funds can be invested in other parts of the business.
- First rental
is the only initial outlay.
- Tax efficient
-rentals are tax deductible.
- Operator can
benefit financially from careful maintenance and use of the equipment.
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