Operating Leases are a financial solution used to finance 100% of an equipments value.
Legally, Komatsu Corporate Finance is the owner/lessor of the equipment while the customer is the Lessee. The Lessee has no option to purchase the equipment under leases.
The accounting and taxation treatment of a true Operating Lease can be summarized as follows:
QUESTION
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ANSWER
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Is it on or off the Lessee's balance sheet ?
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Off balance sheet
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What portion of the rentals are expensed for Australian Accounting Standard purposes?
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The full rental (excluding GST) is expensed to the Lessee for accounting purposes.
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What proportion of the rental is tax deductible ?
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The full rental (excluding GST) is tax deductible to the Lessee for Income Tax purposes.
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Are up front deposits allowable ?
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No. In order to comply with Australian Tax Office requirements.
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Must there be a residual value ?
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Yes. But this value can not be guaranteed by the Lessee and it must be of a certain minimum size to satisfy Australian Accounting Standards. The residual values are generally not disclosed to the Lessee.
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When is Goods & Services Tax payable ?
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GST is paid with each rental.
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Any other limitations ?
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The lease term can not exceed 75% of the equipment's useful life. Also, AASB 117 "Leases" requires substantially all the risks and rewards incidental to ownership of the leased equipment to remain with the Lessor.
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What happens at the end of the lease ?
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The Lessee must return the equipment to the Lessor, unless the lessor has agreed to extend the lease for a further term. Return conditions will apply.
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The accounting and taxation treatment of financial products is subject to change. We
strongly recommend that you seek independent advice from your taxation and accounting adviser. Please
refer to the Terms and Conditions of Use of this Web Site.
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