Purchasing a Business Vehicle – Ownership Vs Leasing

The benefits of leasing a vehicle are:

Get to claim the lease as a monthly expense.
May have an upgrade option after a certain period with keeping the lease payments roughly the same.
Still get to claim running costs – e.g petrol, repairs, registration etc.

The disadvantages of leasing are:

Paying monthly payments for a vehicle you usually won’t own at the end of lease.
No depreciation claim.
May have to pay a personal use portion (like FBT adjustment) based on your vehicle lpersonal use.
Can only claim GST back on each monthly repayment.

The benefits of purchasing the vehicle under an HP agreement:

Claim the interest portion of the repayments as an expense.
Repayments are quite often not much more than lease monthly payment.
You own the vehicle at the end of the term.
You will write off the full purchase price of the vehicle as an expense over approximately 3 years for a car, a bit longer for a van.
Get to claim the GST back on the full purchase price of the vehicle at the start of the finance agreement if GST registered.

The disadvantages of purchasing with finance are:

May have to pay FBT on the cost price of the vehicle.
May need to pay back GST on the trade in value or sale price of the vehicle when sold.
May have to pay tax back on depreciation recovered when selling or trading in the vehicle. This will occur when sale price is more than book value.
Probably will need to pay a deposit
May be able to trade in an existing vehicle

This a brief guideline only – please check with your tax advisor before deciding which is best for your situation.