Car Lease Adelaide Companies Use To Rent Cars.
Leasing cars has become less popular these days, with even novated leases not commonly recommended by accountants like they were 20 years ago.
Changes to tax legislation has made leasing almost pointless apart from companies who want cars and debt off their books because the lender is the owner of the car, with the company making rental payments.
How Car Leasing Works
Leasing finance provides companies with the use of the car for an agreed period. There is no right to purchase the car, although the company may approach the lender at the end of the term, and the lender may agree to sell the car to the company.
The company (Lessee) makes a series of rental payments that can be structured to suit the cash flow of their business. The rental repayments can be tax deductible (up to 100%) provided the car is used to generate assessable income.
Residual Value
All 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 lease. This amount 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. The Australian Tax Office has issued guidelines which detail what the tax department consider are the minimum residual value percentages for cars which they consider to have an effective life of 8 years.
The percentage of cost to be used to determine minimum residual values for leased assets with an effective life of eight (8) years are:
| Term Of Lease | Residual Value |
|---|---|
| Year 1 | 65.63% |
| Year 2 | 56.25% |
| Year 3 | 46.88% |
| Year 4 | 37.50% |
| Year 5 | 28.13% |
Lenders normally finance 100% of the car, inclusive of any accessories. The lender claims depreciation and most lenders will only finance up to the ‘luxury limit’ of $57,009 because there is no tax benefit over this amount.
Comprehensive Insurance
Lenders require comprehensive car insurance on all cars that are leased and cannot be included in the loan amount because the lender owns the car, so must be arranged separately with the lender noted as the interested party.
Amounts, Terms & Age of Car
Most lenders will lease cars for a minimum term of 12 months (1 year), to a maximum term of 60 months (5 years).
Leased amounts above $10,000 with cars no more than 4 years old are considered by the majority of lenders, with newer cars and higher amounts looked at more favourably.
GST Impact on Leasing Cars
The lease is calculated using the invoice price net of GST, the lender pays the GST amount and claims it as a tax credit. The company leasing the car pays GST on the lease rental together with stamp duty.
Lessees who are registered for GST may be able to claim input tax credits for any GST paid on the lease rentals.
End of Term
At the conclusion of the lease period, the residual value remains outstanding and the following options are available:
- Where the useful life of the car extends beyond the original lease period, the lessee may choose to finance the car for a further term.
- The lender may allow the lessee to buy the car for the termination value and any amounts still owing under the lease.
- The company 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 & Charges
The following list sets out the most common fees and charges which may be payable by the company to the lender.
- Loan application fee, documentation and settlement fee,
- Repayment book fee if not set up as direct debit,
- Early termination fee,
- Vehicle security register (VSR) fee.
2 ways to Apply For Car Finance
Fast Way
The fastest way to get an answer for finance is to complete our easy application form online. You even have the ability to attach files from your computer.
Easy Way
The easy way to apply for finance is to request a call back. Leave some details and we’ll call you back to complete the loan application over the phone.