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Finance Lease Explained

A finance lease keeps the asset off your balance sheet and makes the full lease payment a deductible expense. At end of term — buy, re-lease or return. Ideal for businesses that want flexibility and consistent deductions.

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Finance Lease Explained

In a finance lease, the lender owns the asset and leases it to you for an agreed term. You make regular lease payments and at end of term have the option to purchase the asset at its residual value, extend the lease, or return it.

Best for:

Businesses that want off-balance-sheet treatment, consistent deductible payments, or flexibility to upgrade regularly. Particularly popular for technology and medical equipment.

Advantages

  • ✓Asset stays off your balance sheet
  • ✓Full lease payment typically tax deductible
  • ✓No large upfront outlay — preserves working capital
  • ✓Easy to upgrade to newer equipment at end of term
  • ✓GST on lease payments claimable over lease term
  • ✓Flexible end-of-term options

Things to Consider

  • −You don't own the asset during the lease
  • −No upfront GST claim — spread across payments
  • −Can't claim depreciation (lender claims it)
  • −Early termination can be costly
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FAQs

Common Questions

You typically have three options: pay the residual and own the asset, refinance the residual and continue, or return the asset. Your broker can help you plan which suits your business.
A finance lease transfers most risks and rewards of ownership to you, even though the lender technically owns the asset. Operating leases are shorter-term with the lender retaining more risk.
Yes. Finance leases are available through low doc pathways — bank statements and BAS statements are often sufficient.
Yes — particularly because of the end-of-term upgrade option. When equipment becomes obsolete you can return it and lease newer technology.
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