EZILEASE offers a variety of finance options to businesses (ABN holders) and consumers.As each option will have a different effect on your taxation, depending on your company and personal tax set up, we suggest that you seek independent tax advice from your accountant or financial advisor.
Below are details on the finance products that EZILEASE can provide;
Operating Lease -A tax effective way for businesses and consumers to get the use of equipment without having any of the issues that are normally associated with outright ownership.
An operating lease is commonly called a rental and works in a similar way to short term rentals of items like audio visual equipment for conferences, accommodation in a hotel or a rental car used while you are interstate on a business trip.When you rent any of these items you are entering into a contract in which you pay for the use of the items over a specific period.At the end of the contract you do not own these items as you have simply paid a daily amount for the right to use them.
When you enter into an operating lease contract you agree to pay a monthly amount for the use of the items for a specific term.The term of the contract is stated in months and is normally 24, 36, 48 or 60 months.Generally IT (Computing) equipment is not taken for longer than 36 months.
At the end of the contract you are given 3 end of term options,
Return the goods and stop paying the rental
Upgrade the goods for new items and continue the lease (the lease amount may be more or less per month depending on the cost of the new items)
Purchase the goods by making an acceptable offer EZILEASE
Some of the benefits of an operating lease are;
Flexibility - you are able to add items to the rental or upgrade items to a larger capacity as your business grows.
Obsolescence Protection - as items become outdated or technology becomes obsolete you will always have access to the latest equipment.Many companies purchase their IT (Computing) requirements and then are stuck using outdated technology in a couple of years.Because they have made a significant capital outlay they are often reluctant to dispose of the old equipment and invest in new items.
No Disposal Issues - Businesses are now required to dispose of outdated equipment in an environmentally friendly manner.This is often a time consuming and costly exercise.If you decide to return the goods at the end of term EZILEASE is responsible for disposing of the goods and the costs involved.
Capital Retention - With little or no upfront costs involved and a small monthly payment you are able to retain your operating capital.
Tax Deductible - Payments are 100% tax deductible as an operating expense when the goods are used solely for business purposes.*
Finance Lease - This is a very similar product to the operating lease with the exception that you own the goods at the end of term upon payment of a residual value. Generally a finance lease is used when the client wants to gain the tax benifits of a rental (operating lease) but retain ownership of the goods at the end of term.
Commercial Hire Purchase - If the goods are to be retained at the end of the finance term a commercial hire purchase (CHP) is a popular finance option.
CHP's are a way of financing the items over a set period with a balloon payment at the end of term providing outright ownership. GST is not charged on the installements as it is calculated in the total finance amount. If you use a accruals basis for the GST in your business you will be able to claim the entire GST component at the time the CHP commences*.
Any size deposit can be applied to the CHP which differs from a lease as you must borrow the entire amount for the items.
A CHP is noted on your businesses balanace sheet and the items are depriciable. The repayments that are made are not tax deductible but are only a cash flow consideration. If you wish to change the items you have in a CHP you are required to pay out the finance and start a new agreement.
Novated Lease - A novated lease is an agreement between an employer, an employee and a finance company. This is generally used for vehicle leasing under a salary sacrifice model.
An employee that is able to salary sacrifice in order to use a vehicle may be entitled to apply for novated lease The employee completes an individual finance application form via the EZIAPPLY option and the finance is assessed on the credit-worthiness of this individual. Once approved the employee signs a lease agreement with the finance company.
Then the employee, the employer and the financier sign a novated lease agreement which transfers the obligation to make the leasing payments to the employer. Whilst the employee works for the employer, the employer now must make the repayments. These repayments are taken out of the employee's salary before tax is taken out.
A fully novated lease transfers all the rights and obligations of the lessee to the employer.
Chattel Mortgage - A Chattel mortgage or Commercial Loan is a loan agreement where you are the owner of the equipment and you provide a charge to the financier. This is known as a bill of sale or chattel mortgage. You provide security for the loan by way of a mortgage to the financier - hence the name.
A chattel mortgage is similar to a hire purchase agreement. You are able to claim depreciation and interest charges as you would for a hire purchase agreement. A chattel mortgage could be preferred over a hire purchase agreement when the borrower accounts for GST on a cash basis. This enables the borrower to claim the GST input tax credit at the time of purchase provided they are registered for GST and are entitled to claim this input tax credit. Alternatively the borrower would have to claim the GST over the period of the loan.
Chattel mortgages attract upfront fees to register this security. Chattel mortgage stamp duty also applies.
Line Of Credit / Master Lease - A master lease can be arranged for a fixed limit which is drawn down in stages. This is generally used when a client needs to make multiple purchases of equipment over a period of time.
The client, once approved, completes a master lease/line of credit agreement which genrerally covers the initial equipment that is required and outlines the terms for adding additonal items to the lease. When additional equipment is required an amendment to the lease is provided to the client with a breakdown of the additional items and the increase in payments. This is signed by the client and witnessed and the goods are delivered. Subsequent payments are increased to the agreed amount to cover the additional items.
* EZILEASE recommends that you seek independent tax advice from your accountant or financial advisor.
