A finance lease is a form of a rental agreement because the lessor owns the asset. At the end of the lease you have the option of purchasing the asset (for a residual amount agreed up front), trading in for new equipment or simply terminating the lease.
There is a risk that at the end of the lease the asset will be worth less than the residual value. One of the advantages of a finance lease is that Merchant Cash pays the GST component which makes your payments lower.
This type of lease is ideal for equipment such as technology that needs regular replacement. It is similar to a finance lease but the risk of the market value being lower than the residual value is with Merchant Cash
, not with you.
At the end of the lease period, you simply return the goods to the financier. In this type of lease the equipment is not listed as an asset on your balance sheet and therefore you cannot claim depreciation. You can however claim the lease payments as a tax deduction.
A “Chattel” is a moveable asset (i.e. anything other than real estate). With a chattel mortgage you own the equipment from the beginning of the lease term.
With a chattel mortgage, only the interest component of the lease payments are tax deductible – but you can also claim a deduction for the depreciation of the asset. In addition you can claim a credit for the GST component on your BAS statement.
A hire purchase is a loan, but generally does not have a deposit and you will always own the equipment at the end of the hire purchase term.
Payments will include GST which you can claim as a credit on your BAS together with deductions for the interest component and depreciation of the asset.