How Leasing Works
Car leasing in Australia has several benefits to it. There are some that are realised right away and some that are realised at tax time. To understand them, you have to understand the basics of how leasing works.
Leasing vs. Buying
When you buy a car, you normally get funding from a lender. The lender sells you this money at a certain interest rate, which is where they make their profit. You use the lump sum to purchase the car and take ownership of the vehicle. From that point on, the vehicle is yours and you simply pay back the amount that you borrowed from the lender.
A lease is a bit different. When you lease a vehicle, a financier purchases the vehicle for you and you pay them a lease fee. The financier owns the vehicle; you do not. The advantage of this is that you get a predictable monthly instalment amount for the lease and you get a predictable interest rate. While these benefits are also among those that you get when you buy, there is one significant advantage to leasing that buying does not have.
After your lease has expired and you've paid your leasing fee, there will still be a sum of money due on the car. If you wish to purchase the car at the time, you may do so for the amount remaining. If you wish to get a different vehicle, you can usually just work this out with the same financier and get a new vehicle. This is the main reason that people usually choose to lease rather than choosing to buy. The amount that they pay is comparable to what you'd pay for a car payment on a vehicle that you bought, but you get a new vehicle every time that your lease expires, if you so choose. If you really fall in love with the vehicle, of course, you can just buy it and take full ownership of it.
Car leasing has tax benefits, as well.
Tax Benefits and Car Leasing
You'll be charged GST on your car lease and you can actually use this to your advantage. When you use the leased vehicle for business purposes, you can claim the GST—sometimes in part, sometimes in whole—as an input credit on your taxes for your next business activity statement.
You may also be able to get a tax deduction for the amount of the lease. If you finance an amount below the depreciation limit, you can use this as a deduction on your taxes. If the amount you fund is in excess of the depreciation limit, you can deduct the interest charges and the depreciation value on your taxes. This is one of the main reasons that people choose to lease, particularly if they're doing so for business purposes.
Why Are Lease Rates Favourable?
One of the reasons that a lease gives favourable interest rates is because the lease is secured. Rather than taking an unsecured loan for a vehicle—generally the priciest option—your lease is secured by the vehicle. If you fail to pay on your lease, the financier has the option of seizing the vehicle, so they can charge the lower interest rates due to their lessened risk.
Remember that a lease is always an option when you're looking at a new car. Some car sales businesses offer car leasing as among their services, so you may be able to do it right at the lot! Car leasing makes particularly good sense for business owners and for those that use their personal cars for business, due to the tax breaks that you can get.