The Australian Taxation Office, as of 1st July 2005, states that "a novated lease refers to an arrangement whereby all or part of the lessee's rights or obligations under the vehicle lease are taken over by an employer. The lessee is usually the employee. However, the lessee may be an associate of the employee. In this case, the associate's rights or obligations under the lease are taken over by the employer."

"On payment of the last lease payment, or on termination of employment, a further novation may occur. The deed of novation usually contains a clause stating that on the earlier of, say termination of the lease or cessation of employment of the employee, the employer's obligations under the deed of novation are novated to the employee who again becomes the lessee. In the case of cessation of employment this enables the employee to enter into a new novated lease arrangement with another employer."

There are two main types of novation arrangement:
- a 'full' or 'split full' lease novation that involves a revocation of the original lease, and
- a 'partial' lease novation that does not revoke the original lease.

The GST consequences differ between the two types of novation arrangements due to the different flow of supplies between the parties under each arrangement, so advice from your accountant is recommended.

Operating Lease

An Operating Lease is an "off balance sheet" financing procedure, which provides all the benefits of ownership without the end risk of a residual value commitment and is always business related. This method of financing is ideal for business' that enters into a contract to supply goods and services for a predetermined period, say 5 years they require specific equipment for the term of the contract. At the end of the term, say 5 years; there may not be the opportunity to extend goods & services contract further and therefore the equipment that has been financed is no longer required. Additionally, if the equipment is required on a month-to-month basis a rental arrangement maybe negotiated without entering into a long term agreement.

To maintain taxation guidelines a "residual value position" will be required by the financier, this amount will usually be guaranteed by the supplier, insurance company or a third party; this residual risk position indemnifies the financier that the residual value will be paid at the expiration of the lease term. The rentals are treated as an expense, and ownership may be negotiated for a fair market value at the expiration of the agreement.

Operating Leases for motor vehicles are more widely accepted as a traditional way to finance business fleets. Motor vehicle manufacturers will need to guarantee the residual value of their product in order to compete in the motor vehicle fleet market. At the expiration of the lease period the lessee returns the vehicle (under the prescribed conditions) and there is no further obligation.

Back to top

technology based equipment, for example: computers, photocopiers, communication equipment, office, medical, scientific equipment, etc.

Rental provides the clients with all the benefits of using the equipment without the ownership. At the end of the rental period, the equipment can be handed back with no obligation or purchased at an agreed value.

Implementing a Rental solution allows your capital to be invested in the business and not tied up in rapidly depreciating assets with limited resale value.

Back to top

Sale & Hire Back

This facility is generally available for equipment or vehicles that have been purchased within the previous three - six months.

Using a Sale & Hire Back facility, the client can refinance their existing vehicle or equipment to the financier.  The equipment is then hired or financed back to the client over pre-agreed terms. Sale & Hire Finance Back can provide your client with valuable cash-flow enhancements.

Chattel mortgage finance would be the typical finance instrument when considering this method of refinancing.  Selling the goods to a financier may incur a taxation liability, whereas committing to a chattel mortgage agreement over the goods does not allow title to flow. The financier simply has a charge over the goods. (Consultation with the client's accountant is always recommended when financing is raised in these circumstances.)

lawfundnorthcoast about us why lawfund site map contact us
home loans investment loans lines of credit reverse mortgages business loans leasing
deposit bonds home insurance life insurance
glossary industry links link exchanges link to us loan calculator newsletters testimonials
new about us