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 (in line with ATO guidelines) after which time ownership passes to the lessee.
Monthly payments are claimed as tax deduction.
Amount financed is net of GST – GST charged on each payment
Inflexibility of term structure – residual value must be within ATO guidelines