Finance Lease

• The Financier purchases the asset the customer needs and then leases it to the customer. The customer may pay a monthly rental to the financier to use the asset. At the end of the agreed rental period the customer can return the asset or the Financer will consider an offer from the customer to purchase the equipment for the residual value at the end of the lease term. 
• The customer does not have any rights to purchase the asset (otherwise it may not be classified as a genuine lease from a taxation perspective). 
• The customer indemnifies the Financer for the residual value at the end of the lease term. If the residual value was set correctly i.e. to market value, the customer has some comfort that the price at auction will be sufficient to cover the residual value (providing the asset has been properly maintained). 
• If the customer returns the asset to the Financer for disposal in the market place and the net sale price is less than the agreed residual value, it is the customer's responsibility to make up the shortfall. 
• If a customer makes an offer to purchase, The Financer may consider refinancing the residual value (minimum amount applies and refinance is subject to the Financer's acceptance). 

Benefits to Business 

• Preserve your working capital - Immediate access to vehicles and equipment without paying for them upfront 
• No deposit - 100% finance is available to approved customers 
• Easier cash flow management - payments terms can be matched to the customer's income 
• Won't tie up existing assets - the item being purchased is normally sufficient security for the finance 
• Tax benefits - interest and depreciation are potentially deductible 
• There are no ongoing monthly fees or charges 

At a glance 

• There is no GST payable on the initial asset purchase. The Financer claims the Input Tax Credit (ITC) on the asset purchase upfront. The ITC claimed in relation to cars in the 2003/04 year is subject to a limitation of $5,182. 
• GST is payable on the rental payments over the life of the contract and the residual amount. 
• GST is paid on all fees and charges. 
• If the customer holds an ABN they may be able to claim any GST as an Input Tax Credit (ITC) each month or quarter. 

Luxury Leases 

• The ATO deems a motor vehicle with a 2004/2005 GST exclusive cash price greater than $57,009 (car depreciation cost limit) or greater to be a luxury vehicle. This limit applies to motor cars and station wagons, including four wheel drive vehicles. 
• If the customer holds an ABN they may be able to claim any GST as an Input Tax Credit (ITC) each month or quarter. 
• Although we class the product as a luxury lease, and we document it on our existing lease paper, it is a loan product and not a lease product. We call it a financial (not finance) lease. 
• Tax Treatment of Luxury Cars
  
  Entitlement to depreciation on luxury cars generally 
  There is a specific provision within the tax legislation which limits the amount of tax depreciation a taxpayer is entitled to in relation to luxury cars. Where the cost of a car exceeds the depreciation cost limit ($57,009 for 2004/05) a taxpayer is only entitled to calculate their tax depreciation with reference to the depreciation cost limit. In calculating the depreciable cost of an asset the amount paid is reduced by any input tax credit the taxpayer may be entitled to in relation to the acquisition. For cars the maximum input tax credit claim for the 2004/5 year is capped at $5,182.64. 
  
  Leases of luxury cars 
  For income tax purposes leases of luxury cars are treated as loan transactions, with the lessee being treated as the owner of the car for tax depreciation purposes. The lessee may be entitled to an income tax deduction for the tax depreciation (calculated with reference to the depreciation cost limit) and notional interest on the loan. A luxury car lease involves the lease of a car which has a cost which is greater than the depreciation cost limit. Given that National Capital Finance would be entitled to an input tax credit (subject to the $5,182.64 cap referred to above) in relation to the car the relevant cost is the GST exclusive cost. 
  
  Exclusions from definition of a luxury car 
  A vehicle that is specified in the regulations to be an emergency vehicle, or is in a class of vehicle that are specified in the regulations to be an emergency vehicle; or 
  specifically fitted out for transporting disabled people seated in wheelchairs; or 
  a motor home or campervan 
  if it is a commercial vehicle that is not designed for the principal purpose of carrying passengers. 
  If a vehicle has a load carrying capacity of less than 2 tonnes and is designed to carry both passengers and goods, it will be treated as being designed for the principal purpose of carrying passengers if the passenger carrying capacity exceeds the remaining load capacity and therefore would be subject to Luxury Car Tax. 
  Based on the above and in terms of section 995-1 a car is defined as a motor vehicle (but not a motorcycle) designed to carry a load of less than 1 tonne and no more than 9 passengers. The limit applies to station wagons and 4wd's as well as sedans. The limit applies regardless of whether the vehicle is new or second hand. The ATO does not consider a hearse to be a motor car or a station wagon for this purpose (Determination TD95/25). 
  There are anti-avoidance provisions (Section 40-225) that prevent people from circumventing the car cost limit by offering to reduce the price of a trade in vehicle in exchange for a lower price on the new vehicle. 
  
  Luxury car tax 
  Luxury car tax is a separate tax levied and remitted by the dealer. The tax is passed on from the dealer to The Financer and included in the amount financed. Luxury car tax applies when the GST inclusive price of the car exceeds the deprecation cost limit ($57,009 for the 2004/5 year). 

Government Duties  

• Transaction Duty is a government charge to TheFinancer which TheFinancer passes on to the customer. It is calculated on the monthly payments and is inclusive to GST. 
• Stamp duty applies in all states except Tasmania 

Policies 

• Assets Financed 
• New or near new motor vehicles, trucks, earthmoving, agricultural, industrial plant and professional equipment. 
• Not used for software, computers, office equipment, shop fittings and other used goods. 
• Age of other assets dependent on type of goods and intended use. 
• National Capital Finance is particular about what assets it will lease. We have to be sure that when the goods are returned, there will be a market for resale and the depreciation is not too high. 
• National Capital Finance requires a declarartion of purpose form signed when the customer entity is not a corporation. NB: Recent AFC notice advises that financiers need to take care in accepting customers' signed declarations that goods are for business purposes when other enquiries may lead to a conclusion that the use is non-commercial.