SAF Finance
Products
Commercial Hire Purchase
A Hire purchase contract is a purchase by installment facility providing the hirer legal title to the equipment on completion of meeting all payment obligations contained in the contract.
For tax purposes the hirer is treated as the owner and therefore entitled to claim the depreciation at the appropriate rate plus the interest charges incurred.
Terms can be for periods of one (1) thru seven (7) years generally with fixed installments however, seasonal payments can also be incorporated.
Chattel Mortgage
This is a loan which is secured by the borrower pledging an item of plant or equipment as security.
On completion of the borrowers obligations contained in the loan agreement the lender will then release the mortgage or bill of sale over the item of plant or equipment.
As with a commercial loan the borrower retains ownership of the asset during the term of the contract and is entitled to claim depreciation and interest charges for tax purposes.
Operating Leases
Until the 1st January 1988 all leases were treated "off balance sheet" for tax purposes The combined Australian Accounting bodies, following a period of review, brought down a new accounting standard (AAS17/ASRB1008) now (AASB117) which effectively dictates whether leases will be treated on or off balance sheet and will be designated as follows:
- Finance Lease - ON balance sheet
- Operating Lease - OFF balance sheet
Deductibility of lease rentals for tax purposes remains unaltered.
The most significant "catch all" phrase in the accounting standard which dictates on or off balance sheet is as follows:
- Economic substance will take precedence over legal form.
In simple terms this means that if the lessee intends to acquire the goods at term end it will be treated as a finance lease regardless of the legal documentation which may have indicated that the financial instrument was an operating lease.
Under an operating lease the lessee / renter has no right to the goods at term end and simply adopts the mentality of equipment utilization rather than ownership.
With these changes there has been a trend by publicly listed companies and larger private companies to acquire plant and equipment through the medium of operating lease / rental programmes.
Operating leases can be used to acquire goods including office equipment, computers, motor vehicle fleets, transport equipment, mining and construction equipment.
SAF is a leader in the implementation of operating leases and comprehensively understands the documentation requirements for such programmes.
Finance Lease
Finance lease remains a cost effective way to acquire income producing assets.
As with an operating lease title to the equipment remains with the lessor and as a consequence the lessee for tax purposes is able to claim the payments as an operating expense.
Financing costs are calculated on the full price of the equipment for an agreed term.
Frequency and timing of payments can also be negotiated to suit specific needs.
