Finance Comparison

 

Rental Lease Outright Purchase
May qualify for off Balance Sheet reporting Need to be shown on the Balance Sheet as both an asset and liability. Needs to be shown on the balance sheet as an asset, showing the reduction in cash reserves or increase in liability in overdraft.
Simple accounting if the equipment is 100% for business use then the payment is 100% tax deductible. More complex accounting maybe required. Equity accounting as per AAS17 may be necessary. Yearly accounting requirements of calculating the depreciation on the asset and the relative balance sheet adjustments will be required.
Preserves Working Capital. Paying a monthly rental on the asset as it is used to earn income. Preserves Working Capital. Paying a monhtly rental on the asset as it is used to earn income. Reduces Working Capital. Having to pay completely for the asset today.
No residual value liability. Residual Value liability No residual value liability.
Flexibilty to upgrade to new technology anytime during the period of the agreement (certain criteria applies) through a simple variation of the contract. Contract has to be paid out in full if the client is wanting to upgrade to new equipment. To upgrade to new technology you would need to trade in or write off the old equipment and then find the funds to purchase new equipment.
Flexibility to add on options and/or upgrade components of the equipment during the period of the agreement through variation of the contract as above. Not flexible. Any add ons would have to be financed or paid for separately from this contract with possible complications of ownership. If a component of the lease needed to be upgraded, the entire lease would probably need to be paid out. Add ons and upgrades will be paid for in full by you, which again reduces Working Capital.
Maintenance, software, installation and other intangible items can usually be included. Normally for hardware items only. Any intangible items will probably require a cash payment. You pay cash. Reduction in Working Capital again.
Reduces risk of equipment obsolescence with ability to upgrade. Risk of obsolescence. Risk of obsolescence.
Flexible end of term options. Minimal end of term options.  
GST paid with your payments can be claimed on your Business Activity Statement GST paid with your payments can be claimed on your Business Activity Statement.