A hire purchase is the arrangement in place where the financier owns the car and agrees to hire it back to you over a set term. Even though you have use of the car over the term of the contract you must remember that you are not the owner. You can own the vehicle once the contract has finished and any residual and interest charges owing have been paid in full. A hire purchase also commonly known as a commercial hire purchase is suitable for businesses and those individuals using the vehicle for business purposes.

A rent-to-buy scheme is an arrangement whereby you will be offered the option to purchase the vehicle you are renting. Rent-to-buy schemes seem attractive to those not in a position to buy a car outright or with a poor credit rating. It is advisable to seek legal advice prior to entering into one of these schemes. It should be noted that the rental payments do not go towards the purchase price of the vehicle. Depending on the rent-to-buy arrangement the car will be owned by yourself once you complete all payments, pay a nominal sum or pay a fair market price for the vehicle.

A novated car lease is like a standard car lease but it is financed through salary packaging through your employer. The lease payments are made from your pre-tax income which your employer makes on your behalf. The lease payments include GST. As a novated car lease is taken from your pre-tax income it reduces the amount of tax you pay. As with a standard car lease there is a residual value at the end of the lease term which is to be paid to the financier. The lump sum can be re-financed, paid to own the car outright or you may wish to trade-in the vehicle.

With a novated lease you can choose your own vehicle and organise a lease through an external supplier or your employer may already have a company they use. A Deed of Novation is signed for the term of the lease which means your employer has the obligation of making the lease payments on your behalf from your pre-tax income.

Your employer takes responsibility of the lease payments whilst you are in their employ but ultimately you are responsible for the lease, therefore, if you change employment and your new employer does not salary package you are responsible for the lease repayments.

A standard car lease is likened to renting a car for a period of time. The term of the lease is usually between two and five years. At the end of your standard car lease a residual value remains. The residual is a lump sum that is to be paid to the financier at the end of the term. You may wish to refinance the residual with another lease or payout the residual amount to own the car outright. Alternatively you may wish to return or trade-in the vehicle. If you return the vehicle you will be responsible for any difference between the value of the vehicle and the residual value, whether it is a gain or a loss.

The 2009 Federal budget has resulted in some changes that could provide small businesses with a 50% tax deduction on new car or equipment purchases. This is in addition to the regular tax deductions available on depreciating assets.

Here are the key points to note:

• Businesses with an annual turnover of less than $2 million could benefit from an extra 50% tax deduction on new eligible depreciating assets costing $1,000 or more. The asset must be acquired by 31 December 2009 and installed ready for use by 31 December 2010.  
• Businesses with an annual turnover of $2 million or more could benefit from an extra 30% tax deduction on new eligible depreciating assets costing $10,000 or more. The asset must be acquired by 30 June 2009 and installed ready for use by 30 June 2010. 

 You may be able to take advantage of the Government tax break by using our car and equipment finance solutions to purchase an eligible asset for your business. With interest rates currently at a 49-year low, now could be the ideal time to invest in your business.