An operating lease is, as the name suggests, a type of lease designed to help businesses gain access to commercial assets like vehicles. Whether you’re leasing a car for your small business or a fleet of trucks, you can apply with Savvy today and we’ll help you find the best deal available for your company!
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How do operating leases work?
Here’s a quick breakdown of how these leases work:
- Your leasing company purchases the vehicle on your behalf
- You select the term over which you want to lease your vehicle (between one and five years)
- You set your car’s kilometre limit under your leasing agreement
- Your vehicle’s running costs, including insurance, registration and maintenance, can be included in your payments (fully-maintained) or organised by you (non-maintained)
- Your business is given access to the vehicle and you’ll start making payments with interest and fees
- Once your term has concluded, you’ll hand back the vehicle to the leasing company
As you can see, the risk of obsolescence falls to the leasing company, not your business. There’s no residual payment to speak of at the end of the term, meaning you won’t have the option to buy or sell the vehicle.
What can I use an operating lease for?
As mentioned, operating leases are most commonly used for road vehicles, rather than other specialised commercial assets like equipment. Some of the vehicles you may be able to lease for your business include:
- Cars
- Trucks
- Vans
- Utes
- Motorcycles
- Buses
How are operating leases different from finance leases?
There are plenty of differences between operating and finance leases, which are another option for businesses looking to lease instead of buy. Let’s take a look at how they’re different:
| Operating lease | Finance lease | |
|---|---|---|
| Ownership? | Rests with the lessor at all times | Rests with the lessor until residual is paid, then transferred to the lessee |
| Term length? | One to five years | One to five years |
| Residual payment? | No | Yes – in line with ATO minimum requirement |
| Options at the end of the lease? | Return the vehicle to the lessor | 1. Pay the residual and buy the car 2. Sell or trade in the car to cover the residual 3. Refinance the residual and extend the lease |
| On-road costs included? | Optional | Optional |
| Cost of payments? | Higher (with on-road costs included) | Lower (with on-road costs included) |
| Tax-deductible repayments? | Yes (subject to asset usage) | Yes (subject to asset usage) |
Can I claim my operating lease payments on tax?
Your operating lease payments are tax-deductible, with up to 100% able to be claimed as a business expense. However, it’s important to note that how much you’re able to claim depends on your usage of the vehicle.
A lease for a fleet of trucks that aren’t used for anything other than hauling freight to and from your business premises could, in theory, have 100% of its payments claimed. However, if you’re a small business owner and use your leased car around 20% of the time for personal purposes, you’d only be able to claim approximately 80% of your payments.
If you’re unsure what you can and can’t claim as a business expense, it’s worth speaking with your accountant or another tax professional to get a definitive answer before you submit your tax return.
What’s the difference between an operating lease and a novated lease?
A novated lease is an alternative, non-commercial leasing option available to employees. Under this arrangement, your employer leases a vehicle on your behalf and gives you access to it, taking the lease payments out of your pre-tax salary.
The major benefits of this structure are tax-related: reducing your pre-tax salary means you’re liable to pay less income tax, while GST can be claimed on the purchase and passed onto you as savings.
The vehicle can be used however you like, with no restriction on business usage, but it does come with a residual that you’ll need to pay at the end of the term and will have the same options as a finance lease.
While this product is designed for employees, it can also be taken out by self-employed individuals who pay themselves a salary. You can speak with Savvy about your available options before you sign off on your lease.
The benefits of operating leases
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Refresh your business vehicles more easily
With no need to deal with residuals, you can keep turning over your vehicle (or vehicles) so your business is always operating with the newest models.
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No risks associated with ownership
Although there’s still a responsibility to look after your leased vehicle, it’s your leasing company that has to worry about depreciation and selling it.
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Flexibility when dealing with on-road costs
You’ll have the freedom to decide between having your on-road costs included in your payments for convenience or
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Enjoy tax benefits
Because your car will be used for commercial purposes, you may be able to claim up to 100% of your operating lease payment (depending on your overall usage).
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Applying for a lease with Savvy
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Tell us about yourself and what you want to lease
First of all, fill out our simple online application form. This will tell us details like what you want to buy, how much you need and your business’ structure, revenue and trading time.
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Send through any required documentation
We may require further information in some cases to verify parts of your application. If this is the case, we’ll ask you to submit additional documents via our online portal.
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Discuss your next steps with a Savvy consultant
Once we get all the info we need, we’ll get to work comparing options from our lender panel. A member of our consultant team will give you a call to talk about your options.
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Have your application submitted for formal approval
After you give us the all-clear, we’ll get to work preparing your application to submit to your lender. This can be formally approved as soon as within 24 hours.
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Sign your contract and settle the deal
Once you receive approval, you’ll be sent all the required contracts and forms you’ll need to sign, which can be done electronically. We’ll handle settlement and the asset can be yours before you know it!
