Equipment & Business Finance

A Finance Lease is a rental agreement, the asset is owned by the finance company until it is paid off

 where we arrange the purchase of the business equipment, truck, excavator or vehicle etc for you via a lender. Then you rent it from the lender at fixed monthly repayment over an agreed period. You might have also heard it called a lease or equipment lease.

There is always a residual value at the end of the term, and most financiers will allow you to release the asset at the end or they will offer to sell the equipment to the client for the residual amount. The equipment must be used predominately for business use, terms generally range from 12 to 60 months, and the interest rate is fixed for the term.

What sorts of business equipment do Finance lease best suit?

• Cars
• Trucks and other heavy vehicles
• Office equipment
• Forklifts and other industrial equipment
• Medical equipment
• Printing equipment
• Construction equipment and more
• Industrial equipment
• Earthmoving equipment
• Ownership under Finance Lease

The financier owns the equipment until the final payment, including any residual, is paid. The ownership is then transferred to the Lessee.

Residuals on Finance Lease

There is always a residual value, which is owed to the financier at the end of the term. It is often calculated as a percentage of the original purchase price.

Accounting under Finance Lease

The purchase price under a finance lease is treated as a capital purchase and depreciated over the life of the asset. The interest cost is also treated as an expense. GST is payable with each instalment. Normally lease payments are treated as deductible expenses for businesses.*

*Please refer to your Accountant or Advisor for Tax Advice.

Accounting for a Finance Lease on the Balance Sheet

Both the asset and liability are shown on the balance sheet under a Finance Lease.

Upgrades and Add Ons

Upgrades and add ons generally require another lease and/or payout of the old lease – a penalty may be incurred for this if the residual is not due.

Benefits of a Finance Lease

Keep your capital – we pay 100% of the equipment purchase price up front so you don’t tie up your own funds

Payments are 100% tax deductable if for business use

Depending on your financial position you may have the option to prepay 12 months of payments to reduce your taxable position in a financial year*

Easy budgeting with fixed rental payments over the period of the contract

Short term contracts usually up to 5 years but can be extended to 7 years

You claim the GST back on your monthly payments

A Hire Purchase arrangement is a contract where the financier owns the equipment during the term of the hiring. The hirer pays instalments over the term of the loan, and when the final instalment has been paid, ownership of the equipment passes to the hirer. The equipment must be predominantly for business use, terms generally range from 12 to 60 months, and the interest rate is fixed for the term.

A Commercial Hire Purchase can also be called an offer to hire, hire purchase, asset purchase, CHP or a HP.

What are the benefits of a commercial hire purchase?

• Deposit or trade options – if it suits you at the start of the contract which will reduce your monthly payments.
• Flexible structured payments to suit your cash flow – payments monthly, quarterly, half yearly, yearly and seasonally.
• Easy budgeting – your payments are fixed throughout the contract.
• GST is not charged on payments.
• Tax deductions on depreciation and the interest component of the payment.
• The Hire Purchase contract can have a balloon payment at the end or you can choose to own it at the end.

Ownership under a Hire Purchase

Under a Hire Purchase agreement, the ownership of the goods is transferred to the hirer at the completion of the hire purchase contract. GST is not paid on the instalments, it can be claimed on the initial purchase. Residuals/Balloons on Hire Purchase Agreements

Hire Purchase agreements often contain options for residual or balloon payments at the end of the term which will reduce your monthly repayments during the contract term. At the end of the term when the residual or balloon is due there is an option to refinance it for a further term.

Accounting under Hire Purchase Agreements

The purchase price under a hire purchase contract is treated as a capital purchase and depreciated over the life of the asset. The interest cost is also treated as an expense. GST is accounted for at the start. Under a hire purchase, contract depreciation and interest charges are normally treated as deductible expenses for businesses. GST is usually claimed in full up front, however conditions apply
* Please refer to your Accountant or Advisor for Tax advice.

Both the asset and liability are shown on the balance sheet including GST

Upgrades and Add Ons

Upgrades and add ons generally require another hire purchase agreement and/or payout of the old hire purchase agreement.

Renting is also known as an operating lease. As with a Finance Lease, the financier purchases the equipment required, and then rents the equipment to the client for a series of predetermined rental instalments. No residual is payable, however and at the end of the term you can return the equipment to the financier. Alternatively, if the client wishes to retain the equipment they can make an offer for fair market value to the financier to purchase the equipment. The equipment must be used predominately for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term.

Renting is an operating lease where ownership is not the motivation but where upgrading to new equipment during the term, is easy. If you don’t upgrade, equipment is returned at the end of the term. Alternatively you can make an offer to purchase the equipment. Equipment rentals are popular for every day office equipment such as computers, phones and photocopiers.

Normally there are no residuals in a rental agreement – it is undisclosed.

Rental costs are written off in the month they are incurred. Rental costs are normally treated as deductible expenses for businesses* GST is paid with each instalment.
* Please refer to your Accountant or Advisor for Tax Advice.

Rental equipment is not shown on the Balance Sheet and neither are the rental payment liabilities, other than due or overdue payments.

One of the advantages of a rental is easy upgrades and add ons.

A Chattel Mortgage is a loan agreement whereby the customer borrows funds to purchase equipment, and takes ownership of this equipment right from the start. The lender will take a charge over the equipment as their security. The equipment must be used predominantly for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term. Chattel Mortgages can sometimes be called an equipment loan, commercial loan, national commercial loan.

• Flexibility of having a deposit or trade at the start of your contract to reduce your overall payments
• Short or long term contract 1-7 years usually
• Tax advantages – deductions for depreciation of the asset and interest paid
• Easy budgeting as your payments are fixed so you know what you’re up for each month
• Balloon or residual payment at the end or reduce your overall payments
• Structured payments to suit your cash flow such as monthly, quarterly, yearly and seasonal
• Claim 100% of the GST as a credit on your BAS statement at the purchase of the equipment

Under a Chattel Mortgage the ownership of the goods is with the purchaser/customer from the outset once the invoice is raised and the financier has paid for the goods. The customer makes fixed payments over the term of the contract to repay the goods. There is no GST the instalments.

Chattel Mortgage agreements often contain options for residuals or balloon payments at the end of the term. Taking a balloon payment at the end of the term will reduce the monthly repayment during the contract.

The purchase price under a Chattel Mortgage agreement is treated as a capital purchase and depreciated over the life of the asset. The interest costs are also treated as an expense. GST is included in the purchase price of the goods Under a Chattel Mortgage, depreciation on the goods and interest charges are normally treated as deductible expenses for businesses*. GST is claimed back in full upfront by the customer
* Please refer to your Accountant or Advisor for Tax advice.

Upgrades and add ons generally require another hire purchase agreement and/or the payout of the old Chattel Mortgage agreement.

A car loan for business work in a similar way to a Consumer Car Loan where the financier lends money against the security of the car that is being purchased but the loan is claimed via the business.

Generally the contract is for a term of 12 months to 5 year and it can have a residual payment at the end which can be refinanced at the end of the initially contact. The customer takes ownership of the vehicle at the time of purchase and the financier takes a charge over the vehicle to secure the loan.

Once the loan is paid out the customer has clear title of the vehicle.

• Flexible contract terms ranging from 12 to 60 months (one to five years.
• A balloon value can be applied to the contract enabling the monthly or fortnightly repayments to be tailored to a budget.
• Deposit (either cash or trade-in) may be used.
• A tax deduction is available when the vehicle is used for business purposes.
• The loan is secured against the vehicle, allowing lower interest rates.

A low doc car loan is a car finance option available to business car loan applicants and for self employed customers. Essentially, you do not need to provide payslips or financial statements to obtain a low doc car loan..

Under a non-maintained operating lease the lessee is responsible for all maintenance and other running costs of the motor vehicle.