A lease is basically a rental agreement in which you obtain the rights to possession and use of the property in return for a series of rental payments. This lease is sometimes referred as an operating lease.
Operating lease contracts may not be flexible and contain more restrictions than other form of finance such as the commercial hire purchase agreements. Generally operating lease repayments are fixed and don’t offer some feature that a commercial hire purchase agreements have, such as making a ‘catch-up’, or ‘balloon’ payment, at the end of the contract.
But you still want to lease your business equipment rather than buying it, because of the following reasons: -
Ease your business’s cash outflow by making small manageable evenly spread lease payments.
Lease payments are fully tax deductible.
You don’t want to legally own the property; the risk of obsolescence is shifted to the leasing company.
The business equipment is only used for short-term only. For example, you are in construction & building industry and you lease heavy duty digger on a weekly bases during its peak demand periods only.
The leased property is not accounted as an asset of your business. This type of lease payment is generally treated as an expense in your business’s profit and loss statement.
You should consider this type of finance if your purpose of the business equipment finance is not to gain ownership, but merely to obtain the use of an asset for less than its useful use. The operating leases are essentially rental agreements, such as rent of a building for short term or hire of heavy machinery for a particular project. It is also common to lease business computers rather than purchase them.
If your business entity is registered for GST, you can claim one eleventh of the fully tax deductible lease payment as GST input tax credit.
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