Equipment Finance Terms

Lease

• No deposit required.
• A residual value within ATO parameters is agreed on.
• The equipment or vehicle being purchased is normally sufficient security for the finance.
• Repayments are fixed for the life of the lease, allowing you to plan your cashflow.
• At the end of the lease, you can return it for sale or trade the item in and lease an upgraded model (you will be liable for any shortfall under the residual value).

Novated lease

• The employee has full use of the vehicle
• Both the payments and running costs are made from the employee’s pre-tax income.
• In the case of a non-maintained novated lease, payments are made from pre-tax income, but running costs are met by the employee from after-tax income.
  



Rental

A Rental Operating Lease is ideal for items such as technology – based equipment which becomes quickly superseded and rapidly depreciates.


• You never own the equipment, so you can spend your hard earned capital on more important things.
• You can return the equipment at the end of the rental period or negotiate new terms.
• The term of the contract is usually tailored to the useful life of the equipment.
• The equipment is treated as ‘off balance sheet’ and therefore is not shown in your depreciation schedules.
• Rental payments are tax deductible.
  



Hire purchase

A hire purchase is an agreement to purchase a vehicle or equipment subject to payment terms, which means you gain equity in the asset with each instalment made.


• Ownership of the asset is transferred to you once you make the final payment.
• Depreciation of the item and the interest component of the hire purchase are tax deductible.
• The vehicle or equipment being purchased is normally sufficient security for the finance.
• You can reduce your regular repayments by setting a balloon payment at the end of the term.
• Repayments are fixed for the life of the loan, allowing you to plan your cashflow.



Chattel mortgage

A chattel mortgage involves a loan which gives your financier a Bill of Sale over your asset, but gives you ownership of the asset from day one. We would recommend that you check with your accountant or advisor about which type of equipment finance would best suit your business needs.


• You own the asset immediately when it is purchased.
• The vehicle or equipment being purchased is normally sufficient security for the finance.
• The loan may be for 100% finance or repayments can be reduced by an up-front payment.
• A balloon payment can be built in similarly to a residual value in a lease.
• Depreciation of the item and the interest paid on the loan are tax deductible.
• No GST payable on individual instalments.
• Can be structured to minimise GST impact, as GST can be claimed as an input credit.
• The interest rate is fixed for the term of the contract.
• Payments can be made in advance or arrears.