Car Lease Perth
All the facts about car leases Perth locals need to know: your options, plus the many GST and tax savings. Get started with Savvy today!
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Leasing a car as a Perth business is different from some other forms of finance, primarily because you don’t own the vehicle during the agreement. However, you do gain access to some handy tax benefits in the process. For instance, all leasing costs are based on the GST-free value of the vehicle and payments are tax-deductible – which can save you thousands over the duration of the lease.
For most business users, choosing the best available car finance option is about determining which is the most tax and cost-effective for them, which is where Savvy’s expert finance consultants can help. We’re partnered with a range of commercial finance companies to offer businesses and individuals the choices they need to identify opportunities to save and make an excellent car finance decision. Whether you’re in Perth or anywhere else in WA, get a free, no-obligation quote today!
How do car leases work for Perth businesses?
Under a car lease agreement, you’ll gain access to the car for a specified period between one and five years. After that, depending on the type of lease you have, you can either pay the residual amount and own the car, refinance the residual and extend the lease, trade in the car and get another lease with similar or different conditions or simply hand back the car.
There are also several key tax benefits to consider for commercial leases. As mentioned, the GST on the purchase of the car is able to be claimed by your leasing company and passed on as savings to you. Furthermore, your car lease payments are entirely tax-deductible for the business portion of the vehicle’s usage. This means that if you use the car for private purposes about a quarter of the time, you can claim around 75% of your vehicle’s payment.
When it comes to car leases, there are several products you can choose from. These include:
Finance leases
A finance lease can offer attractive tax advantages. As mentioned, the GST deduction is a huge benefit from the outset of the agreement, representing a GST saving of more than $6,000 on a $70,000 car, for example.
Not only that, but because a lease agreement doesn’t represent a contract of sale during the term, you can claim the repayments as an operating expense – including both the principal and interest portion. Over the course of a five-year car lease, that can have a significant impact on taxable revenue.
Let’s say you’re looking for a car lease, Perth-based and your turnover is $120,000 per year. You find a vehicle for $80,000 and decide on a five-year term with an interest rate of 6% p.a. Every repayment you make reduces your taxable revenue. Coupled with the initial GST saving, over the term of a car lease agreement, that all adds up to some serious savings.
End of lease options allow you to purchase by paying the residual, refinance the residual and extend the lease or sell or trade the car in and begin a fresh lease. Additionally, on-road costs like registration, insurance and servicing will have to be organised by you.
Operating leases
Many Australian businesses and individuals use operating leases because of their tax benefits and convenience. For commercial customers, operating leases present a chance to run presentable, reliable cars for anything between one and five years, and they essentially outsource administration, along with its considerable costs and time demands.
That’s because operating leases are a fully maintained way to finance any vehicle. For many business and private customers, including expenses like registration and insurance, car maintenance and servicing, and even insurance and fuel in the regular lease payment makes perfect sense.
It’s called an operating lease for a reason – this type of finance bears huge cost benefits and productivity gains. Speak with a Savvy consultant about maximising your tax savings and tailoring different running costs to suit your specific operating requirements.
The other big difference comes in its end of term options: rather than having to deal with a residual, this type of lease allows you to hand the vehicle back without charge or make an offer to buy the car.
Novated leases
A different type of lease available is a novated lease. Unlike the other two mentioned so far, novated leasing is an arrangement designed for employees, rather than business owners. It involves three parties: you, your employer and your leasing company. The company buys the car and leases it to your employer, who then gives it to you.
The primary benefit of novated leasing is tax-related: the lease payments are deducted from your pre-tax income by your employer, which is known as salary sacrificing. This means the income tax you’re liable to pay is reduced despite paying the same amount. If you opt for a fully maintained novated lease (on-road costs included) over a non-maintained lease, these can help reduce your taxable income further.
However, it’s worth noting that novated leases can attract the Fringe Benefits Tax (FBT), which is charged on benefits provided to employees by their employers outside their normal salary. This could cost thousands of dollars extra, unless you make post-tax contributions using the Employee Contribution Method (ECM).
Perth commercial car lease alternative: chattel mortgage
Chattel mortgages are a secured form of commercial lending. The key difference here is that you as a business own the vehicle from the start, but the finance provider retains an interest in the car until you make the last repayment. Here’s how they work:
- Chattel mortgages can come with terms between 12 months and seven years.
- Your car acts as collateral, meaning it could be repossessed if you fail to repay your loan but adding extra security to the agreement (and reducing interest rates in the process).
- You can adjust a chattel mortgage residual to reduce the cost of your repayments if you choose, unlike with a car lease (which are set by the ATO). However, residuals will increase the interest you pay overall.
- GST is claimable on the purchase price of the vehicle, as well as the interest on your repayments and depreciation of the vehicle (all claimable for the business portion of its usage).
Perth commercial car lease alternative: car loans
For private car buyers who don’t have access to a salary sacrificing scheme and don’t want to lease a vehicle, car loans are the primary choice in Perth. They’re a relatively simple way to buy a car, and their structure is much the same as a chattel mortgage but without the tax benefits. Like chattel mortgages, your car will remain as collateral for the loan until the end of your term. The key factors about car loans include:
- Terms last between one and seven years
- You can buy new and used cars from dealers, private sellers or auctions, provided they satisfy your lender’s criteria (age limits can reach up to 20 to 25 years with some lenders, while others may not have an age limit in certain circumstances)
- With a car loan, you can trade your old vehicle in, use a cash deposit, or borrow as much as the full asking price of the vehicle you intend to buy.
- You own the car from the beginning of your loan term.
If you’re looking to take out a car loan for yourself or your business, you can get a free, no-obligation quote with Savvy today!
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