Operating Leases
What is an Operating Lease?
An operating lease is an agreement whereby the Lessee (the customer) "hires" the vehicle of their choice for a predetermined period of time. The lease parameters consist of a timeframe and estimated kilometres to be travelled. The Lessee then pays a set monthly lease rental for the period of the lease to the lessor.
This monthly rental can include all running costs associated with the vehicle.
Upon the end of the Lease term, the Lessee returns the vehicle to Melville Toyota for disposal. The residual risk of profit or loss upon the vehicles final sale is taken on by St George.
Characteristics of an Operating Lease
- The finance for the lease is provided by St George
- The management of the vehicles operating costs is provided by LeasePlan
- The vehicle being leased is provided by Melville Toyota
- The lease term is set for a number of months and kilometres travelled
- The Lessee (the customer) pays a fixed monthly lease rental which can include all maintenance, fuel and running costs associated with the vehicle
- At the end of the lease period the vehicle is returned to Melville Toyota for disposal. The LESSEE bears NO RISIDUAL RISK on the vehicle, however, is responsible for the repairing of any excess or unfair wear and tear on the vehicle
What are the Benefits?
- Off Balance Sheet Accounting: the monthly lease rental is accounted for as an expense rather than an asset
- Tax Benefits: the lease rentals are usually FULLY TAX DEDUCTIBLE (this is not the case for luxury vehicles)
- No Residual Risk: you bear no residual risk regarding the loss of value on the vehicle when it is eventually sold at the end of the lease (subject to unfair wear and tear or excess damage)
- No Initial Outlay: there is no requirement for a large initial capital outlay, freeing up your capital for core business activities.
Melville Toyota recommend that you obtain independent financial advice to ensure that you fully understand the benefits applicable to your personal situation.