Renting is also known as an operating lease. As with a Finance Lease, the financier purchases the equipment required, and then rents the equipment to the client for a series of predetermined rental instalments. No residual is payable, however and at the end of the term you can return the equipment to the financier. Alternatively, if the client wishes to retain the equipment they can make an offer for fair market value to the financier to purchase the equipment. The equipment must be used predominately for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
Renting is an operating lease where ownership is not the motivation but where upgrading to new equipment during the term, is easy. If you don’t upgrade, equipment is returned at the end of the term. Alternatively you can make an offer to purchase the equipment. Equipment rentals are popular for every day office equipment such as computers, phones and photocopiers.
Residuals on Operating Lease/Rental
Normally there are no residuals in a rental agreement – it is undisclosed.
Accounting under Operating Lease/Rental
Rental costs are written off in the month they are incurred. Rental costs are normally treated as deductible expenses for businesses* GST is paid with each instalment.
* Please refer to your Accountant or Advisor for Tax Advice.
Rental equipment is not shown on the Balance Sheet and neither are the rental payment liabilities, other than due or overdue payments.
One of the advantages of a rental is easy upgrades and add ons.