What is an operating lease?

An operating lease is an agreement offered by a Financier, fleet management or leasing company who gives the use of an asset, like a work Ute or a Van or even an excavator without ownership rights.  All the running costs of the of the asset such as;

• Insurance
• Servicing
• Registration
• Maintenance
• Roadside assist

Are included in the monthly lease cost for the designated term and the usage kilometers agreed to.

Currently operating lease costs are treated as a business expense.  Your monthly payment to the lease company will sit as an expense on your business’ profit and loss statement.  They are known as an off- balance sheet item.  As you are not the owner of the Ute and do not carry the ownership of any debt, the item does not sit as an asset or a liability on your balance sheet.

However..

as of January 2019, all new operating leases will sit as a liability on your business balance sheet.

Generally, an operating lease agreement avoids any administrative costs such as accounting requirements. It also gives added benefit for a user to just return the asset at the end of the lease period.

It is important to note, that as you don’t own the asset at the end of the lease therefore you don’t have the option of selling the vehicle for more than it’s worth after the period as you would with a finance lease. You also do not carry the risk of having to sell it for less.

How much will an operating lease cost per week?

Well that all depends on the type of item you are looking for.  Let’s say for instance you are looking at a brand new Toyota Hilux workmate. The leasing company will consider the following;

1. What model of Hilux you would like,
2. What Spec ‘s you want to add to the Ute (toolboxes, ladder racks, tow bar etc.)
3. How long you would like to lease the Hilux,
4. How many KM’s you travel per year (which will then determine maintenance and some of the depreciation costs),
5. If you need roadside assist,
6. If you want to bundle in fuel costs as well

The leasing company will package the cost into one monthly payment.  A base model Toyota Hilux 4X2 workmate with the tray and trade spec conversion will set you back somewhere between $120 – $150 per week.

After the last lease payment you return the Ute to the lease company and opt for a new lease on a new Ute.

Unsure whether this is the right option for you?

Give us a call on 02 9533 2393, let us help you find the right option for you and your business.