There are a number of different ways you can go about leasing a car in Australia, and although due to the way their employer and changes in the Australian Governments Tax Legislation remunerate most people, a car lease has become less popular but they still have their place. It is also important to remember that with a car lease, the car must be used for generating an income; that is to say for business use in the main. This is different to a car loan which is for people who use their car for predominantly personal use.
Purpose
Car lease finance provides you with the use of the car for an agreed period. There is no right to purchase the car, although you may approach the financier at the end of the term, and the financier may agree to sell the car to you. You, the customer ( Lessee ) make a series of rental payments that can be structured to suit the cash flow of your business.
The rental repayments can be tax deductible ( up to 100% ) provided the car is used to generate assessable income.
Residual Value
All car leases have a residual value at the end of the term of the agreement but which is agreed to prior to the commencement of the car lease. This is an estimate of the value of the car at the end of the term and is expressed as a percentage of the original purchase price. Because of the taxation benefits associated with leases the ATO has issued guidelines which detail what the tax department consider are the minimum residual value percentages for all categories.
Lease Lending Ratio
Financiers must fund 100% of the purchase price of the vehicle, including accessories. Unlike a hire purchase, you may not pay a deposit prior to the commencement of the car lease agreement, except for the trade equity, to a total of 12 months repayments.
Insurance
Financiers will require full comprehensive car insurance. The car insurance cannot be borrowed with most financiers on a car lease because the financier owns the vehicle.
Amounts and Terms
There are no rigid rules to lending amount minimums or maximums. So must be confirmed with individual financiers lending guidelines.
Term guides: minimum: 12 months Maximum: 60 months
GST Impact on Car Leasing
A car lease is a financial product whereby you, hold the car on lease by making regular monthly lease payments. At the end of the car lease you may ask and the financier may agree to sell the car to you at the end of the lease term. There is no right of purchase. Lessees who are registered for GST may be able to claim input tax credits for any GST paid on the lease of the car.
Generally car leasing is a taxable supply, and all rentals, termination payments and fees are taxable GST. GST also applies to stamp duty. Commission payments and brokerage attract GST.
With car leasing the amount financed is the full GST-inclusive price of the asset less any input tax credits that are available to the financier.
State Government stamp duties are calculated on the GST inclusive price in SA and WA. In all other states stamp duty is calculated on the GST exclusive price.
At the conclusion of the lease period, the residual value remains outstanding and the following options are available:
- Where the useful life of the equipment extends beyond the original lease period, the lessee may choose to finance the car for a further term.
- The financier may allow the lessee to buy the car for the termination value and any amounts still owing under the lease.
- The Customer can sell or trade out of the car providing the termination value is paid out together with any other amounts owing including “break fees” if applicable.
Fees and Charges
The following list sets out the most common fees and charges associated with a car lease, which may be payable by you. As they are subject to change, please consult the individual financiers fee and charge structure.
- Loan application fee
- Repayment book fee
- Early termination fee in all states
- VSR fee
- alternative payment method fees; if not on a direct debit
- Government stamp duty fees.
