- Posted 31 Mar
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From a company’s prospective, providing company car’s can be a costly exercise, particularly when it comes to taxes and managing mileage and maintenance.
One of the best ways for a company to reduce the amount of administrative issues associated with providing company car’s is to lease the cars. A business car lease is referred to as an operating lease and is a great way to provide a company car without the hassle of actually owning a depreciating asset.
Why an Operating Lease is the Best Option for Businesses
- An operating lease is a sound way to finance a new company car as it provides ‘all care but no responsibility’ – the business never owns the car but gets all the perks of accessing latest car models.
- There is no capital to outlay. The business just pays a monthly rental payment, allowing expenses to be easily monitored and the repayments are 100 percent tax deductible.
- An operating lease is well suited to companies whose core business requires employees to be out on the road a lot, as the more kilometres you do, the less your monthly repayments are. The aim is to be using the car for more than 50 percent business activities.
- With this type of lease, costs such as fuel and maintenance are included in the monthly repayments, so it makes managing business cash flow much easier.
- Because the business doesn’t own the car at the end of the lease, you can continue to update your company car’s every few years, gaining access to the latest models and ensuring fuel economy. This will also keep employees happy.
Operating Lease vs. Hire Purchase
An operating lease is different to a hire purchase. With a hire purchase, a business is unable to include mileage and maintenance charges into the monthly repayments and a capital outlay is usually required to secure the vehicle initially.
Another way that a hire purchase and operating lease are different is that at the end of the hire purchase term, you will own the vehicle, whereas at the end of an operating lease, the car goes back to the leasing company. This means that the business is not left holding a depreciating asset, reducing tax issues.
The benefits are obvious when it comes to deciding on what type of finance to use to purchase a company car. Why would a business choose to spend money outright to purchase a depreciating asset when they can lease a car and get tax back on repayments – it makes excellent business sense.
The only real disadvantage would be if a business decided to ‘close up shop’ – any lease repayment amounts would need to be paid out, which could be a costly exercise, as there would be penalties and fees associated with doing this. In some instances, it would be almost impossible to exit out of the lease early, so this would need to be factored into any decision making process.
Overall, a business car lease makes perfect sense if you are looking to access a new company car without having to worry about all the associated costs that go with owning a vehicle.
If you need help with finding a car and initiating an operating lease, contact the team at Australian Credit and Finance. They have years of experience in the business car finance industry and would be happy to assist. Contact them today – 1300 735 557.