A Car Lease is one of the most straight forward car financing options for a business when purchasing a new or used car. Car Lease may require little or no deposit depending on circumstances and lease payments may be up to 100% tax deductible depending on tax status. A car lease differs from a Commercial Hire Purchase where the interest payable and depreciation is deductable.

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Car lease is a rental agreement, where the finance company purchases the goods for you and you rent it from them for an agreed monthly repayment. The finance company owns the goods at the end of the agreement. It is important to note that there is no option for you to purchase the car either during or at the end of the agreement. However most finance companies will consider an offer from you to purchase the car for the residual value at the end of the lease term.

 

How a Car Lease works

Car Lease Terms can be from 1 - 5 years and must be in accordance with ATO Guidelines.

 

 

 Deposits: Deposits are not required. The full purchase price must be financed.

 

 

Car Lease Residual/Balloon: You must have a residual payment as the last payment of your car lease agreement according to Australian Taxation (ATO) Guidelines. This varies between 25% to 65%. This residual value represents the approximate value of the car at the end of the lease term.  A residual payment allows for lower monthly payments and leaves you with more working capital to run your business.

 

 

Car lease agreement sets out the  

 

Ownership of the car /legal title remains with the finance company during and after the term of the car lease. You may have an option at the end of the lease to purchase the car at the agreed residual value.

 

 

The monthly rental payments are 100% tax deductible, provided the goods are solely used for business purposes You should always seek advice from your accountant on the best type of lease/ finance for your business. The best type of finance may depend upon whether your business operates on a cash or accrual basis.