The terms of finance leases are generally between 2 -5 years and residual amounts are generally governed by the Australian taxation office guidelines.
Advantages of finance leases:
- Lessee may own equipment upon payment of the residual
- There is no upfront cash outlay
- Equipment ownership at end of term
- Fixed term
- Fixed rate over the term
- Generally there is no need for mortgage security
Businesses that use finance leases
All types of business use finance leases. It is most utilised by businesses that prefer equipment ownership.
Tax and accounting treatment for finance leases
Finance leases payments are generally treated as a expense item meaning that 100% of payments are expensed.