{"id":29874,"date":"2023-01-01T06:52:33","date_gmt":"2023-01-01T06:52:33","guid":{"rendered":"https:\/\/swoopfunding.com\/au\/?post_type=blog&#038;p=29874"},"modified":"2024-08-22T11:06:17","modified_gmt":"2024-08-22T11:06:17","slug":"finance-lease-explained","status":"publish","type":"blog","link":"https:\/\/swoopfunding.com\/au\/business-loans\/asset-finance\/finance-lease\/","title":{"rendered":"Finance leasing explained &#8211; what is it?"},"content":{"rendered":"<div class=\"aivoov-player-block\">\n\t<div class=\"read_this\">Read this article to me<\/div>\n\t\t\t<style>\n\t\t\t.plyr__controls .plyr__controls__item:first-child{\n\t\t\t\tbackground:#2e9c8e !important;\n\t\t\t}\n\t\t\t:root{\n\t\t\t--plyr-color-main:#2e9c8e;\n\t\t\t--plyr-audio-controls-background:#f0f2f4;\n\t\t\t--plyr-audio-control-color:#546a7b;\n\t\t\t}\n\t\t\t[data-plyr=\"mute\"]{color:#2e9c8e !important}\n\t\t\t.aivoov-text-color{color:#546a7b}\n\t\t<\/style> \n\t\t<div class=\"audio_player\">\n\t\t<audio class=\"js-player\" controls=\"\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/eb9bb677-e2d6-45ad-9865-2562484dbd6b.mp3\" type=\"audio\/mp3\">\n\t\t\t<source src=\"https:\/\/monky-voice-over.s3.amazonaws.com\/aivoov\/781640cc-7bc1-4bbf-9492-22dedc19678b\/eb9bb677-e2d6-45ad-9865-2562484dbd6b.mp3\" type=\"audio\/ogg\" \/>\n\t\t<\/audio> \n\t\t\t\t <div class=\"powerd_by aivoov-text-color\"><p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/aivoov.com\/?um_source=plugin_powered_by\" style=\"color: inherit;\">Powered by AiVOOV<\/a><\/p><\/div>\n\t\t \n\t\t<\/div>\n\t\t<\/div>\n\n\n\n<p>No matter if your business is a limited company, PLC, partnership, or sole trader, there\u2019s a finance lease for you.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_dc78b7-85 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_dc78b7-85 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_dc78b7-85\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\">A <strong>finance lease puts you in control<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>Most businesses need expensive assets to produce the goods and services they sell. These assets are typically cars, vans, plant and machinery. Without them, many businesses simply cannot function. However, buying big-ticket items can create problems with cashflow and for companies with seasonal finances, spending a large sum all at once may be impossible. But not to worry. Say hello to the finance lease \u2013 the low-cost way for businesses to secure the major tools they need.<\/p>\n\n\n\n<p>Buy over time with a low deposit. Roll maintenance and repairs into the deal. Finance leasing is fast, flexible and affordable. Give your business what it requires without creating a financial crunch.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_6d0a7e-45 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_6d0a7e-45 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_6d0a7e-45\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong>How does a finance lease work?<\/strong><\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>The term \u2018finance lease\u2019 has become a catchall phrase for asset financing that is not a dedicated purchase agreement (such as hire purchase). In fact, there are three main types of finance lease:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Finance lease:&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>A finance lease allows your business to use an asset for a fixed period and for a fixed monthly rental cost. At the end of the agreement the business will have the option to purchase the asset for a pre-agreed sum. A finance lease allows businesses to spread the cost of the asset over time and with lower monthly payments than if they were to purchase the asset.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/swoopfunding.com\/au\/business-loans\/asset-finance\/operating-lease\/\">Operating lease:<\/a><\/li>\n<\/ul>\n\n\n\n<p>Similar to finance leasing, but the lessee (you), cannot purchase the asset at the of the contract. Additionally, the agreement will include a Residual Value that is based on the period of the lease and the estimated value of the asset at the end of the contract.<\/p>\n\n\n\n<p>At the end of the agreement the asset is sold to a third party on behalf of the finance company.&nbsp;If the asset sells for more than the Residual Value, the finance company will refund a percentage of the surplus back to you. If the asset sells for less than the Residual Value, you will be liable to make a further payment to the finance company.<\/p>\n\n\n\n<p>An operating lease allows businesses to use the asset for a lower monthly cost than finance leasing or buying an asset with hire purchase. Depending on the asset being leased, operating leases may come with included maintenance and repairs.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Contract hire:<\/li>\n<\/ul>\n\n\n\n<p>The simplest form of lease. Contract hire is just a long-term rental. The business rents the asset for a fixed term \u2013 typically 2-3 years \u2013 and pays a fixed monthly sum for its use. Maintenance and repairs are usually included in the deal. At the end of the contract, the business hands the asset back to the lessor. There is no Residual Value to meet, and no option to buy the asset.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What can be leased?<\/h2>\n\n\n\n<p>Leasing is a flexible arrangement that can apply to many different assets and equipment. Essentially, Any tangible asset that holds value and can be used for business purposes can be leased. This includes but is not limited to equipment, machinery, vehicles, technology, office furniture, and real estate properties. Additionally, intangible assets such as intellectual property, software licenses, and even services can sometimes be leased. The suitability of leasing depends on factors such as the nature of the asset, the business&#8217;s financial situation, and its specific needs and goals.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_df0fac-e9 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_df0fac-e9 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_df0fac-e9\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>Finance lease a car<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>Finance leasing for a <a href=\"https:\/\/swoopfunding.com\/au\/business-loans\/asset-finance\/business-car-finance\/\">company car<\/a> works as above, with the agreement often including maintenance and repairs and a mileage cap. Lessees who exceed the mileage cap will pay extra for every mile they go over the limit. Depending on the type of finance lease, the lessee may have the option to buy the at the end of the contract period.<\/p>\n\n\n\n<p>Company cars are taxed differently from most business assets. Even though the vehicle has been leased by a business (which may be a limited company, PLC, partnership, or sole trader), the organisation may only claim back some of the lease cost \u2013 which will depend on the ratio of business to personal use of the car. <\/p>\n\n\n\n<p>Finance leases allow businesses to spread the cost of using the car over time and at a lower monthly cost than if they were to purchase the car with a hire purchase agreement. In most cases, the initial deposit is equal to one month\u2019s lease payment.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_0ef857-f5 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_0ef857-f5 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_0ef857-f5\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>Finance lease a van<\/strong><\/h2>\n\n\n\n<p class=\"answer\">Finance leasing for <a href=\"https:\/\/swoopfunding.com\/au\/business-loans\/asset-finance\/business-van-finance\/\">vans and other commercial vehicles<\/a> is similar to leasing for company cars. The only major difference is the tax status of the lease. <\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_156c6d-b4 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_156c6d-b4 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_156c6d-b4\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>An example of finance leasing<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>ABC Plumbers need a new van for their business. Instead of paying cash or opting for a hire-purchase agreement that comes with higher monthly payments, they choose to lease a new vehicle. The deal they select is an operating lease. It works like this:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The van costs $20,000.&nbsp;<\/li>\n\n\n\n<li>The lessor (lender) offers to lease the van to ABC (the lessee) for $350 per month, including service costs, and for 48 months. The Residual Value is set at $4,000.&nbsp;<\/li>\n\n\n\n<li>ABC pays one month deposit of $350 and drive their new vehicle away. Over 4 years, they pay a total of $16,800 for use of the van.&nbsp;<\/li>\n\n\n\n<li>At the end of the contract, the vehicle is sold for $5,500 &#8211; $1,500 more than the agreed Residual Value. The lessor passes 95% of $1,500 back to ABC. They receive $1,425 which they use to lease a new vehicle and put the surplus cash back into their business.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_8f2461-c9 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_8f2461-c9 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_8f2461-c9\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>Pros and cons of finance leasing<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\"> \n <div class=\"pros\">\n <div class=\"header-pro\">\n <img loading=\"lazy\" decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swoopfunding.com\/au\/wp-content\/themes\/swoopMW50\/assets\/images\/pros.svg\" width=\"72\" height=\"72\" alt=\"Pros\">\n <p class=\"title\">The Pros:<\/p>\n <\/div>\n <div class=\"content-pro\">\n <ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Allows the business to obtain a newer asset than they may be able to secure if they were to buy it.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Spreads the cost over time and at a fixed monthly price which will not go up even if bank interest rates rise.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Allows a business to use an asset at a lower monthly cost than if they were to buy it with a hire purchase agreement.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Low deposit \u2013 usually equal to the first month\u2019s lease payment.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Depending on the leased asset, the agreement may include maintenance and repairs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Depending on the type of lease, the lessee may have the option to buy the asset at the end of the contract period.<\/span><\/li>\n<\/ul>\n <\/div>\n <\/div>\n \n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_fc477c-9a .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_fc477c-9a .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_fc477c-9a\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n \n <div class=\"cons\">\n <div class=\"header-cons\">\n <img loading=\"lazy\" decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swoopfunding.com\/au\/wp-content\/themes\/swoopMW50\/assets\/images\/cons.svg\" width=\"72\" height=\"72\" alt=\"Cons\">\n <p class=\"title\">The Cons:<\/p>\n <\/div>\n <div class=\"content-cons\">\n <ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Unless the lessee chooses a Finance Lease, the asset returns to the lessor (lender) at the end of the contract period.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">May include a large Residual Value that could see the lessee paying more at the end of the contract.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">May include usage limitations \u2013 such as a mileage cap \u2013 that could cause the lessee to pay more at the end of the contract.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The lessor owns the asset. If the lessee defaults on payment, the asset returns to the lessor.<\/span><\/li>\n<\/ul>\n <\/div>\n <\/div>\n \n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_09c9ac-e8 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_09c9ac-e8 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_09c9ac-e8\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>What are the five criteria for a finance lease?<\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>The five criteria of a finance&nbsp; lease (not an operating lease or contract hire agreement) are:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Lessee may own the asset at the end of the lease.<\/li>\n\n\n\n<li>The lease contains a \u2018bargain purchase\u2019 option \u2013 this means the lessee may buy the asset for less than the market value.&nbsp;<\/li>\n\n\n\n<li>The lease is active for a major part of the asset\u2019s economic life.<\/li>\n\n\n\n<li>The total of the lease payments will represent most of the fair value of the asset when the lease was taken out.<\/li>\n\n\n\n<li>The asset is of such a specialised nature that it will have no further value to the lessor at the end of the contract period.<\/li>\n<\/ol>\n\n\n\n<p>If your lease contains one or more of the above, you have chosen a finance lease.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_737ba8-3d .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_737ba8-3d .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_737ba8-3d\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>What is the difference between a finance lease and an operating lease?<\/strong><\/h2>\n\n\n\n<p class=\"answer\">A finance lease gives the lessee the option of buying the asset at the end of the contract. With an operating lease, the asset always returns to the lessor (the lender). An operating lease will also include a Residual Value that determines the projected value of the asset when the contract ends. If the asset is worth less than the Residual Value when the contract ends, the lessee must pay an extra charge to make up the difference.<\/p>\n\n\n\n<p><a href=\"https:\/\/swoopfunding.com\/au\/business-loans\/asset-finance\/finance-lease-vs-operating-lease\"><strong>Read more:<\/strong>&nbsp;our in-depth finance lease vs. operating lease guide<\/a>.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_b43336-a2 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_b43336-a2 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_b43336-a2\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>Finance lease vs hire purchase<\/strong><\/h2>\n\n\n\n<p class=\"answer\">A finance lease is a long-term rental agreement with an option to buy at the end of the contract. A hire purchase agreement lets the buyer purchase the asset over time, with the value of the asset repaid in equal instalments. The buyer always owns the asset when the contract ends. Finance lease monthly payments are usually lower than hire purchase because the lessee is only paying down some of the value of the asset.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_64205f-0d .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_64205f-0d .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_64205f-0d\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong>Finance lease vs contract hire<\/strong><\/h2>\n\n\n\n<p class=\"answer\">A finance lease is a long-term rental agreement with an option to buy at the end of the contract. Contract hire is also a long-term rental agreement, but it will usually include maintenance and repairs, and the asset always returns to the lessor at the end of the contract period. There are no residual payments with contract hire.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_dfe249-16 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_dfe249-16 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_dfe249-16\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong>Finance lease vs capital lease<\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">Finance leases and capital leases are almost the same type of loan. However, a capital lease is recognised as a form of purchase for tax purposes and the leased asset must be recorded on the balance sheet as a taxable item. Capital leases may also offer more flexibility with regard to eventual ownership and with the format used to calculate the monthly cost.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_d4cfa9-44 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_d4cfa9-44 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_d4cfa9-44\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong>Is a finance lease the same as lease purchase?<\/strong><\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">Yes. Both are long-term rental agreements with an option to buy at the end of the contract. However, lease purchase is more like Hire Purchase + Balloon in structure \u2013 with the lessee almost certain to buy the asset at the end of the term. With lease purchase, the lessee pays for the asset over time in equal instalments to own the asset at the end of the term but pays less each month than in a simple hire purchase agreement. At the end of the contract period, the buyer will need to make one larger payment to own the asset. This is called a \u2018balloon\u2019.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_a9e3af-ea .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_a9e3af-ea .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_a9e3af-ea\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong><strong>Is PCP a finance lease?<\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">Yes. PCP (Personal Contract Purchase) and finance leasing both allow the lessee to pay for the use of the asset over time at a lower monthly payment than if they were buying the asset with hire purchase. At the end of the contract, PCP and finance leases give the lessee the option to buy the asset from the lessor. Note that PCP leases are more commonly used by private buyers, not businesses.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_556027-f4 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_556027-f4 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_556027-f4\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong><strong><strong>Australian finance lease accounting treatment<\/strong><\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>AASB 16 is an Australian accounting rule designed to report information that faithfully represents lease transactions and provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Record the present value of all lease payments as the cost of the lease.<\/li>\n\n\n\n<li>Record the interest portion of each payment as an expense.<\/li>\n\n\n\n<li>Depreciate the cost of the asset over its applicable write-down period.<\/li>\n\n\n\n<li>Recognise the disposal of the asset at its retirement.<\/li>\n<\/ul>\n\n\n\n<p>Depending on the type of asset being leased (car, van, machinery, etc), the lessor may be able to claim up to 100% of the value of the lease payments as a tax deduction.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_50c620-12 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_50c620-12 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_50c620-12\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong><strong><strong><strong><strong><strong>Capital allowances on a finance lease<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">Australian finance leases are often considered to be an alternative form of \u2018purchase\u2019 and for accounting purposes they are included as assets and denied capital allowances. Instead, the accounts depreciation of a finance lease is usually allowable as a tax-deductible expense.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_c5f06d-4f .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_c5f06d-4f .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_c5f06d-4f\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong><strong><strong><strong><strong><strong><strong>What is a finance lease with a balloon?&nbsp;<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">A finance lease with a balloon is the same as Hire Purchase + Balloon or a Lease Purchase agreement. The lessee pays a lower monthly sum than they would with a simple Hire Purchase agreement, and they have the right to buy the asset at the end of the contract by paying a larger, final sum \u2013 known as the \u2018balloon\u2019.<\/p>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_20b32c-36 .kt-block-spacer{height:20px}.wp-block-kadence-spacer.kt-block-spacer-29874_20b32c-36 .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:80%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_20b32c-36\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading question\"><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong>Will I own the vehicle at the end of a finance lease?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n<p class=\"answer\">It depends on the type of lease. You may opt to buy the vehicle at the end of the contract with a finance lease, but the vehicle will go back to the lessor with an operating lease or a contract hire agreement<\/p>\n\n\n\n<h2 class=\"wp-block-heading question\">What happens at the end of a lease?<\/h2>\n\n\n\n<div class=\"wp-block-group answer\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p>When a lease ends, a few things can happen, depending on the terms outlined in the lease agreement and any negotiations between the parties involved. Typically, this include deciding whether to renew the lease agreement or end it. If the lessee wants to keep the leased asset, negotiation for a lease extension or a new lease with updated terms is common. On the other hand, if the lessee no longer needs the asset, the lease agreement will end.<\/p>\n\n\n\n<p>If the lease agreement ends, the lessee usually returns the asset to the lessor and may need to fulfill remaining obligations, such as returning the asset in its original condition or settling outstanding payments. Then the lessor decides whether to sell, re-lease or reclaim the asset. Some lease agreements even allows the lessee to buy the asset at the end of the lease agreement<\/p>\n\n\n\n<p>Ultimately, what happens at the end of a lease depends on the lease terms, the parties, and any negotiations made. Clear communication and sticking to the lease terms are key to make sure the interests of both parties are met.<\/p>\n<\/div><\/div>\n\n\n<style>.wp-block-kadence-spacer.kt-block-spacer-29874_6eb1d1-de .kt-block-spacer{height:60px}.wp-block-kadence-spacer.kt-block-spacer-29874_6eb1d1-de .kt-divider{border-top-width:1px;height:1px;border-top-color:#eee;width:100%;border-top-style:solid}<\/style>\n<div class=\"wp-block-kadence-spacer aligncenter kt-block-spacer-29874_6eb1d1-de\"><div class=\"kt-block-spacer kt-block-spacer-halign-center\"><hr class=\"kt-divider\"\/><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>No matter if your business is a limited company, PLC, partnership, or sole trader, there\u2019s a finance lease for you. A finance lease puts you in control Most businesses need expensive assets to produce the goods and services they sell. These assets are typically cars, vans, plant and machinery. Without them, many businesses simply cannot [&hellip;]<\/p>\n","protected":false},"author":26,"featured_media":29728,"comment_status":"closed","ping_status":"closed","template":"","category":[1672,1368],"class_list":["post-29874","blog","type-blog","status-publish","has-post-thumbnail","hentry","category-asset-finance","category-blog"],"acf":[],"featured_image_urls_v2":{"full":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease.jpg",1254,837,false],"thumbnail":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-150x150.jpg",150,150,true],"medium":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-300x200.jpg",300,200,true],"medium_large":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-768x513.jpg",768,513,true],"large":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-1024x683.jpg",1024,683,true],"1536x1536":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease.jpg",1254,837,false],"2048x2048":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease.jpg",1254,837,false],"image_blog":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-408x252.jpg",408,252,true],"image_podcast":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-397x298.jpg",397,298,true],"image_banking":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-30x20.jpg",30,20,true],"image_blog_internal":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-840x480.jpg",840,480,true],"image_blog_medium":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-1024x500.jpg",1024,500,true],"image_single_banking":["https:\/\/swoopfunding.com\/au\/wp-content\/uploads\/sites\/4\/2023\/10\/finance-lease-80x53.jpg",80,53,true]},"post_excerpt_stackable_v2":"<p>Read this article to me Powered by AiVOOV No matter if your business is a limited company, PLC, partnership, or sole trader, there\u2019s a finance lease for you. A finance lease puts you in control Most businesses need expensive assets to produce the goods and services they sell. These assets are typically cars, vans, plant and machinery. Without them, many businesses simply cannot function. However, buying big-ticket items can create problems with cashflow and for companies with seasonal finances, spending a large sum all at once may be impossible. But not to worry. Say hello to the finance lease \u2013&hellip;<\/p>\n","category_list_v2":"<a href=\"https:\/\/swoopfunding.com\/au\/category\/asset-finance\/\" rel=\"category tag\">Asset finance<\/a>, <a href=\"https:\/\/swoopfunding.com\/au\/category\/blog\/\" rel=\"category tag\">Blog<\/a>","author_info_v2":{"name":"Chris Godfrey","url":"https:\/\/swoopfunding.com\/au\/author\/chris-godfrey\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/29874","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog"}],"about":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/types\/blog"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/users\/26"}],"replies":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/comments?post=29874"}],"version-history":[{"count":4,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/29874\/revisions"}],"predecessor-version":[{"id":38369,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/blog\/29874\/revisions\/38369"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/media\/29728"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/media?parent=29874"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swoopfunding.com\/au\/wp-json\/wp\/v2\/category?post=29874"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}