Comparison Operating Lease/Rental v Finance Lease v Commercial Hire Purchase/Chattel Mortgage

Cost of assets $100,000.00 GST on cost of assets $10,000.00 Operating Lease/Rental Finance Lease Commercial Hire Purchase/Chattel Mortgage
1 What is the cost of goods financed Excludes GST (100K) Excludes GST (100K) Includes GST (110K)
2 Who claims GST on cost of goods Paid and claimed by Global Rental and Leasing Paid and claimed by Global Rental and Leasing Paid & claimed by Funder; On-charged to client who can claim (under CHP or CM) at the beginning of contract if on “accruals basis. If Cash Basis- then can claim upfront if CM.
3 Do repayments include GST Yes, but payment is lower as based on $100k not $110k Yes, but payment is lower as based on $100k not $110k No but payment  is higher as based on $110k, not $100k
4 Is there a residual value payable at the end of the contract No Yes Usually Nil but can have a balloon value.
5 Who retains the risks of asset ownership Global Rental and Leasing, as it has legal title Risks and benefits passed to the client but legal ownership may or may not eventually be transferred Risks & benefits passed to client and legal ownership is transferred at end of contract
6 Who can claim depreciation Global Rental and Leasing Global, but client amortises lease (see 11) Client
7 How do repayments compare Can be lower as Global invests in assets ie it takes a “residual risk” Represents the entire cost of the leased asset plus interest Represents the entire cost of the hired asset plus interest
8 Composition of repayments Rental Principal & interest Principal & interest
9 What happens to the goods at the end of the contract Client must return goods but can negotiate to continue renting Client can pay the residual and retain the asset Client retains the asset
10 Term of lease As requested Dependant on useful life Dependant on useful life
11 Balance sheet implications May not be on balance sheet, but total rental expense & commitments to be disclosed in notes to the accounts Present value of minimum lease payments shown as asset & liability.  Asset is amortised & liability is reduced by principal component of repayments.  Commitments disclosed by note. Full asset value accounted for on balance sheet and loan liability
12 Profit & loss implications Entire rental (ex-GST) expensed in the P&L Interest expense portion of repayments & amortisation of lease asset  in the P&L Interest expense portion of repayments & depreciation of assets in the P&L
13 Taxation implications Rental (ex-GST) treated as business exp & eligible for a deduction, GST refundable by ATO Interest expense & amortisation of lease asset claimable, GST refundable by ATO Interest expense & depreciation of assets claimable, no GST
14 Is the contract cancellable Yes, as long as terms & charges are met Yes, as long as terms & charges are met Yes- but penalties apply
15 Any penalties on cancellation No, as long as terms & charges are met Yes Yes
16 Can client upgrade during the term Yes No No