Leasing Finance

Leasing Finance is used where the prime benefit to the borrower is from the use of the goods rather than the ownership. This is why the asset is leased rather than purchased. The tax deduction with leasing is the full deductibility of the lease rentals.

Leases are structured with a residual value which should approximately equal the value of the asset at the end of the term. This residual can either be refinanced at the end of the term or paid out by the borrower who then owns the goods. Leasing can be ideal for motor vehicle purchases but it generally not suitable for other newsagency assets such as point of sale systems, fixtures & fittings and wrapping machines due to the high residual values that must be placed on the agreements to comply with tax guidelines.

Commercial Hire Purchase is more suited as a method of financing these assets. The GST treatment of leases is that the financier is deemed to be the owner of the asset and therefore pays the GST on the asset being financed. The borrowers GST liability is on the monthly rentals to which a 10% GST is added.