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Finance Lease
A financier advances the purchase price of the equipment using the asset as
security. The financier (or "lessor" in finance terms) retains ownership of the
asset with the customer (or "lessee") having full use in return for periodic
payments. The lease payments are fully tax deductible provided that the asset
is utilised to generate taxable income. At the end of the lease, the customer
pays a "residual" amount to gain full ownership of the equipment.
Hire Purchase
Commercial Hire Purchase (also known as Asset Purchase) is similar to leasing
except the customer claims the allowable depreciation on the equipment plus
interest as a tax deduction, as opposed to claiming the actual lease payments
under a finance lease. The customer can structure the payments so that nothing
is owing at the end of the term, or a "balloon" payment (like a residual in a
finance lease), can be used to reduce the monthly payments. When the last
payment is made the customer will gain full title to the equipment.
Operating Lease/Rental
This option provides several advantages, particularly for public companies,
schools and government bodies. An operating lease is a type of lease in which
the financier retains ownership of the leased equipment. Under an operating
lease there is no predetermined "residual" value to pay as ownership does not
automatically pass to the customer at the end of the term.
Operating leases may not be listed on the company's balance sheet. Being "off
balance sheet" is considered a major advantage over finance leases,
particularly for public companies, which may have borrowing restrictions.
By not having to list the operating lease on the balance sheet the company's
debt to equity ratios are not adversely affected by using the equipment for a
set period of time.
For high technology equipment, which usually becomes obsolete over the term of
the lease, the risk of ownership is removed as the customer can hand back the
equipment and upgrade.
Under the operating lease/rental option, the customer has more flexibility at
the end of the term, as he may: -
· hand back the equipment and upgrade
· continue to rent the equipment
· offer to purchase the equipment at fair market value
Novated Motor Vehicle Leasing
Under this arrangement, an employee leases a motor vehicle from the financier
using a standard finance lease agreement. A 'novation' agreement is entered
into between the employee, employer and the financier under which the
employee's obligation to pay the lease rental is transferred to the employer
for the term of the novation agreement. Therefore the employer pays the lease
rentals direct to the financier. There are tax benefits to all parties under a
novated motor vehicle lease.
Small Ticket Leasing
The falling cost of computer and office equipment has given rise to a number of
"small ticket" leasing facilities starting as low as $5,000. Conditions and
price vary from lender to lender, but one of the more popular options does not
require private companies to provide hard copy financial statements for
transactions up to $20,000.
'Private' Lease and Rental Arrangements
We have our own Commercial Lease and Rental agreement for use between spouses,
inter-company transactions, or whenever the need exists to have a legitimate
lease arrangement without Bank funding. Our $250 flat fee includes full
documentation in duplicate.
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