Benefits of equipment finance|Types of Equipment Finance|In-Context Finance

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BENEFITS OF EQUIPMENT FINANCE

Equipment Finance is a highly effective way of financing your business.

Advantages include:

conservation of working capital
ability to keep at the forefront of technological advances and improve efficiencies
tax benefits (provided that the equipment is used for business purposes)
flexibility in structuring payments to suit your cash flow
budgetary certainties as most equipment finance agreements are written at fixed rates for fixed periods.

The Equipment Finance market is highly competitive and efficient. Both new and used equipment can be financed. In-Context Finance works with a wide range of equipment finance providers who provide same day on-line in quotes and seamless settlement processes. Contact us today for your equipment finance requirements.

TYPES OF EQUIPMENT FINANCE

Three of the most common types of equipment finance facilities are outlined here.

Finance Lease

Chattel Mortgage

Commercial Hire Purchase

The main differences between them are:

ownership of the equipment, which in turn has implications for
accounting, income tax and GST

We strongly recommend that you obtain advice from your accountant as to what is appropriate for your business’ taxation and cash flow situation. The information provided here does not constitute legal, tax or accounting advice.

Finance Lease

A rental agreement where the financier purchases the equipment and you rent the equipment for the term of the lease for a fixed monthly payment.

Amount: The full purchase price must be financed.

Ownership : The financier owns the equipment during and after the lease term. You do not have any automatic right or option of purchase. However, you may offer to buy the equipment from the financier at the end of the lease term.

Term : Between 1 to 5 years but must be in accordance with ATO Guidelines. Lenders have minimum term requirements.

Residual Value : Must have a residual value which must be in accordance with ATO Guidelines. (Residuals have the benefit of lowering the monthly rental payments during the term of the lease.)

Tax/GST/Stamp Duty :

GST on purchase of the equipment is covered by the financier as the financier is the purchaser.

Monthly rental payments are subject to GST and stamp duty and are 100% tax deductible provided the goods solely are used for business purposes.

Residual payment and early termination payments are also subject to GST.

Chattel Mortgage

A fixed interest rate loan secured by a mortgage over the equipment being financed.

Amount : You do not have to finance 100% of the purchase price. Trade-in of equipment being replaced (eg motor vehicle) will reduce amount required to be financed.

Ownership : You have ownership of equipment, subject to the mortgage. The mortgage is discharged with the payment of the final instalment of the loan.

Term: Usual term is between 1 – 5 years. Lenders will have minimum term requirements.

Balloon : Can be anywhere between 10% – 40% of the cost of the equipment, depending on lending guidelines which will take into account the estimated realisable value of the equipment at the end of the loan term. (Balloons have the benefit of lowering the monthly payments during the term of the loan.)

Tax/GST/Stamp Duty :

GST on purchase: You have to pay the GST portion of the invoice. Amount financed under a Chattel Mortgage is based on GST-exclusive price. However, most financiers are prepared to structure the loan to assist in financing the GST amount until your next BAS lodgement.

Interest component of the monthly repayments and Depreciation on the equipment are tax deductible provided the equipment is used solely for business purposes.

Stamp Duty is payable on the Mortgage. No GST or Stamp Duty applies to the monthly repayments.

Commercial Hire Purchase

An agreement under which the financier purchases the equipment and rents it to you for a fixed monthly payments over an agreed period. When you make the final payment, ownership automatically transfers to you.

Amount: You do not have to finance 100% of the purchase price. Trade-in of equipment being replaced can be used to reduce amount required to be financed.

Ownership : The financier has legal ownership of the equipment until the final payment is made; at which time ownership automatically transfers to you. [Note: From the taxation stand point, you are the owner at all times.] You have the right to purchase the equipment at any time during the term of the agreement. Break costs may be applicable.

Term : Usual term is between 1 – 5 years. Lenders will have minimum term requirements.

Balloon : Can be anywhere between 10% - 40% of the cost of the equipment, depending on lending guidelines which take into account the estimated realisable value of the equipment at the end of the term. (Balloons have the benefit of lowering the monthly payments during the term of the loan.)

Tax/GST/Stamp Duty :

GST on purchase: The financier is deemed to have sold you the goods at the commencement of the agreement and has a GST liability. The amount financed is therefore inclusive of GST. The monthly instalments are not subject to GST.

Interest component of the monthly repayments and Depreciation on the equipment are tax deductible provided the equipment is used solely for business purposes.

Stamp Duty is payable on each instalment but not on the Balloon payment. GST is payable on the Stamp Duty portion of each instalment.