Leasing a car for business
See if your business is eligible and the business vehicle leasing options available.
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Key takeaways
- Business leasing could suit you if you want to avoid a large upfront cost and keep vehicles off your balance sheet.
- You could choose an operating lease if you want flexibility and don't plan to own the vehicle at the end of the term.
- Consider a finance lease if you want the option to buy the car later and spread out payments over time.
What are my business car leasing options?
There are various leasing options available if you’re looking to lease a car for your business. These include:
- Operating lease. Like a long-term rental. You don't own the car, but lease payments may be tax-deductible. Some options bundle in insurance, servicing and maintenance.
- Finance lease. The lender owns the car and you lease it with regular repayments. You may have the option to buy it at the end of the term.
- Fleet management. Ideal for businesses with multiple vehicles. You outsource vehicle admin, with all costs (servicing, fuel, repairs) bundled into one invoice - often with discounts.
- Commercial hire purchase. Similar to a finance lease. You repay the lender over time and may claim input tax credits on the GST of the purchase price.
- Novated lease. A salary packaging option for employees. Payments are deducted from their pre-tax income and the employer manages the lease on their behalf.
Example case study
Jason runs a small marketing agency in Sydney and needed a reliable, professional-looking vehicle for client visits - something modern with low running costs. He was looking at a Hyundai Ioniq 6, valued at $77,500 drive-away.
He considered two options:
- A business car loan, which would allow him to own the vehicle outright
- A business car lease, which came with lower monthly repayments and the option to upgrade at the end of the lease
After speaking with his accountant, Jason opted for the business car lease. Here's why:
- Lower monthly repayments helped his business cash flow during a growth phase
- Regular vehicle upgrades meant he could always drive a newer car with the latest tech and safety features
- Due to the way his business was set up and the vehicles use - his accountant advised him that they may be tax benefits
- No residual risk - at the end of the lease, he could hand the car back or start fresh with a new lease, without worrying about resale value
For Jason, leasing offered flexibility and financial breathing room, which was more valuable to him than long-term ownership. It also aligned with his plans to switch to a newer EV model every few years as technology improves.
How much will it cost my business to lease vehicles?
There are a number of different costs associated with various business vehicle leasing options. A fully maintained lease will include the cost of fuel, maintenance, registration and other ongoing costs in your repayments, whereas a non-maintained lease will simply cover the cost of leasing the vehicle. Your costs will also depend on the number, type and age of the vehicle(s) you choose to lease.
However, there are some costs that may apply, regardless of the vehicle leasing option you choose. These include:
- Establishment fees
- Monthly or ongoing service fees
- An account maintenance charge
- Charges for asking to vary the lease terms
- A fee if the lease ends early which will be determined by the car leasing company
- Direct debit dishonour fees
You will also have to cover any ongoing running costs if you opt for a non-maintained lease and this should be factored into the overall cost of your lease.
What features are on offer with business vehicle leasing?
Some of the features offered with business vehicle leasing include:
- Reduced fleet administration costs.
- Access to an online portal. Some car leasing companies offer an online portal so you can easily see fuel usage and servicing of your fleet of cars.
- Peace of mind. If you get a fully maintained lease, you have the peace of mind of knowing that everything from fuel to roadside assistance is covered in the fee you pay each month.
- Employee leasing options. Novated leasing allows employees to lease vehicles using their pre-tax income.
- No requirement to buy the vehicles. As you’re leasing the vehicle, there’s no reason for you to now go out and spend thousands on a fleet of vehicles for your team. You can simply lease them and keep costs down.
- Flexibility of lease. If your employee moves before the lease is finished, the lease of the vehicle follows them to their next job. This means that you don’t have to pay off a vehicle that is no longer benefiting your business as well as dealing with vehicle removal once the lease is up.
- Set kilometre limit. Every business car lease has a yearly kilometre limit. This is agreed upon in advance and is usually about 16,000+ kilometres. This can give you peace of mind as you know that your employees aren’t driving around and racking up the kilometres on an asset for the business. If they do, there’s an additional mileage fee.
Can I lease a car through my business as a sole trader?
Yes, sole traders can lease a car through their business. Just like companies and partnerships, you'll need to show proof of business income and meet the lender's eligibility criteria. Leasing can be a tax-effective option if the vehicle is used for business purposes, but it's best to speak with your accountant to understand what you can claim.
Is my business eligible?
Different lease providers will have their own eligibility criteria that your business will need to meet to be eligible for a business vehicle lease. These may include:
- Have an Australian Business Number (ABN).
- Be trading for a minimum period of 24 months.
- Show your current debt and assets situation. This is because there are credit applications that need to be approved before you can start up a leasing agreement with a car leasing company. Good credit is also handy here, as the application will ask you for your credit score as well as your credit history.
- Know the amount you want to borrow, as well as the asset you're looking to finance through a novated lease. To be approved for a novated lease from a business point of view, it's important that you know how much you want to borrow as well as the type of asset you're looking to finance. Entering this into your application shows that you're aware of the amount you want to borrow as well as what type of car you want to provide for your employee.
Is it better to lease or buy a car through my business?
It depends on your business goals and cash flow.
Leasing can offer lower upfront costs, potential tax deductions and the flexibility to upgrade vehicles regularly.
Buying (with a loan or outright) may cost more upfront, but you'll own the asset and won't face lease restrictions like kilometre limits or wear-and-tear clauses.
If your business prefers fixed costs and regular upgrades, leasing might suit better. If long-term ownership and building equity matter more, buying could be the better path.
What happens at the end of a business car lease?
It depends on the type of lease.
With an operating lease, you usually return the vehicle at the end of the term, or extend the lease or upgrade to a new car.
With a finance lease, you may have the option to buy the car by paying out the residual value.
Check your contract for end-of-lease options and conditions - especially around balloon payments or vehicle return standards.
What other options do I have?
If business car leasing doesn't sound suitable for your business, you can instead finance your business vehicle using a car loan. Compare your options below.
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