If you’ve ever wanted to buy a truck, some of the prices out there are astronomical – especially if your business is in its infancy. Instead of buying, you can choose another option: leasing. But what are the benefits of leasing? What are the benefits of buying? This post sifts through both to give a better answer.
Leasing - benefits
There are two kinds of common truck leases on the market – operating leases and finance leases. Operating leases give businesses a way to gain use of a truck and limit their capital expenditure by “hiring” the truck with monthly (or fixed-term) repayments. Another benefit you can offset payments against taxable profits. Operating lease costs are deducted as expenses, which means you can fund repayments from operational income. Financial leases are similar; however, the lessee (business owner) has an option to purchase the truck at the end of the lease. Once your lease is up, you may hand back the old truck for a new one with a new lease.
Leasing – drawbacks
Leasing is the same as renting – all the money invested into the truck lease is “dead money” that doesn’t result in equity. At the end of an operating lease, you must hand the truck back to your financier or dealer. There are few risks in leasing but few rewards beyond use of the truck to make profit. You must also adhere to strict guidelines of what you may do and not do with the truck and keep it in good condition.
Buying – benefits
Buying a truck means you take on all the risks of truck ownership but all the rewards. On your balance sheet, your truck is an asset. This means you can claim depreciation on your asset as well as interest payments. In many cases, with a chattel mortgage or hire purchase, you can claim the GST in the purchase price on your BAS. You may also claim the full GST input tax credit, which means further savings for you. You also have the option to sell your truck or trade it in when buying new.
Buying – drawbacks
If you buy the truck, you must drive it throughout its life cycle. That means take on all the responsibilities for maintenance, insurance, fuel and other costs. Unless you want to sell the truck for much less, than you bought it for (if you can) you will have to use that truck and that truck only. If you don’t maintain your truck, it could result in a poor re-sale or trade-in value.