Benefits &

Characteristics

Rental / Operating Lease

Finance Lease

Hire Purchase 

Chattel Mortgage

Value that can be financed

Total value of the equipment should be financed.

Total value of the equipment should be financed.

Deposit can be paid, but not mandatory. An amount up to 100% can be financed

Deposit can be paid, but not mandatory. An amount up to 100% can be financed

Accounting treatment

Liability NOT on customer's balance sheet if complies with accounting standards

Liability on customer's balance sheet

Liability on customer's balance sheet

Liability on customer's balance sheet

Interest

Not claimed by customer.

Not usually claimed by customer (see below)

Claimed by customer

Claimed by Customer.

Title/Depreciation

Title lies with Lender. Depreciation available to Lender.  

Title lies with Lender. Depreciation available to Lender. 

Technically title lies with lender, but rights of title with Hirer (Customer). Tax deduction for Hirer

Title with borrower. Tax deduction for Borrower (Customer). Goods mortgaged to financier.

Tax effect for user

Payments may be deductible for Lessee (Customer) to the extent the asset is used in producing assessable income.

Payments may be deductible for borrower (Lessee) to the extent the asset is used in producing assessable income.

Borrower (Hirer) claims tax deduction for interest on contract plus depreciation of asset to the extent the asset is used in producing assessable income

Borrower claims deduction for interest on the loan plus depreciation of the asset to the extent the asset is used in producing assessable income

Residual/Balloon

There is no disclosed residual or balloon.

Residual is mandatory. Is an estimate of value at end of term but generally in line with ATO guidelines. Lessee indemnifies the Lender (Lessor) for residual.

Balloon payment is optional. Normally lenders will look at maximum being similar % as they would for a lease residual but there is no minimum.

Balloon payment is optional. Normally lenders will look at maximum being similar % as they would for a lease residual but there is no minimum.

General Payment Terms

Payments may be in advance or arrears. Rate fixed for the term of the contract. Monthly quarterly and seasonal available.

Payments may be in advance or arrears. Rate fixed for the term of the contract. Monthly quarterly and seasonal available.

Payments may be in advance or arrears. Rate fixed for the term of the contract Monthly quarterly and seasonal available.

Payments may be in advance or arrears. Rate fixed for the term of the contract. Monthly quarterly and seasonal available.

GST Issues and Input Tax Credits (ITC)

Lender purchases equipment and claims an ITC. Repayments are calculated on the GST exclusive price.

Lender purchases equipment and claims an ITC. Repayments are calculated on the GST exclusive price.

Liability to GST arises at the time of supply of equipment. The GST amount can be paid up front, funded or paid as well as the repayment that coincides with the Hirer's ITC claim.

Borrower acquires goods directly from the supplier and claims ITC as per a normal purchase.

GST on payments

GST is added to the amount paid by the lessee for the rentals, residual and any purchase of the asset. Lessee/Borrower can generally claim any GST paid as an ITC

GST is added to the amount paid by the lessee for the Lease payments, residual and any purchase of the asset. Lessee can generally claim any GST paid as an ITC

No GST liability for the balance of repayment, balloon or final transfer of the asset to the customer

There are no GST consequences on repayments, balloons or pay out.

Disadvantages

No GST claimable up front

No GST claimable up front

General view is that no GST claimable up front if you account on a cash basis

GST claimable up front. But nearly always a charge has to be registered with ASIC and therefore borrowing becomes public knowledge.