How does a Fully Maintained Operating Lease Work?

Under a Fully Maintained Operating Lease, the client rents the equipment from the lessor or financier along with bundling the running costs of the equipment into the monthly payment. At the end of the term, the client hands the equipment back or can purchase the goods at fair market value.

Features of a Fully Maintained Operating Lease Facility

  • Term of a lease can range from 12 months to 84 months
  • Client adds the running costs of the equipment into the monthly rental – ie fuel, servicing, registration and roadside assistance
  • Customer hands the equipment back at the end of the term
  • Client has the option of purchasing the asset from the financier at the end of the term based on the fair market value of the goods.
  • 100% of the cost of the asset is financed
  • full monthly payment is claimed as a tax deduction on profit and loss statement
  • financier claims the gst on the purchase price as an input tax credit

Benefits of a Fully Maintained Operating Lease Facility

  • by adding running costs of the equipment to the monthly payment, client can easily budget for ongoing expenses as both the monthly payment and operating costs are the same every month
  • no asset risk held by the customer as they hand the goods back at the end of the term
  • a Fully Maintained Operating Lease for truck finance allows a client the ability to upgrade trucks on a regular basis in the event large kilometres have been travelled over the life of the truck
  • reduced tax paid to the ATO as the full payment is claimed as a tax deduction
  • Fully Maintained Operating Leases are treated as off balance sheet lending which improves the balance sheet position of the business

Example of a Fully Maintained Operating Lease used for Truck Finance

  • Purchase Price of 5 new Tilt Tray Trucks – $1,500,000 (gst inc)
  • Finance Type – Fully Maintained Operating Lease
  • Loan Amount – $1,363,636.36 (client borrows the ex gst amount)
  • Term – 60 months
  • Residual – NIL
  • Payments – monthly in advance

Outcome

Running costs of the tilt tray trucks were included in the monthly rental – ie fuel (a driver received a Caltex fuel card) servicing, tyre replacement, registration and roadside assistance

As client was a fleet operator, they could easily budget for expenses going forward in order to tender for a new contract. They had fixed costs on both monthly payments for the trucks and the running costs which meant that could accurately project net profit for 5 new trucks

Client did not need to payout a residual at the end of the term and would look to upgrade to 5 new tilt tray trucks

Client was happy with the Fully Maintained Operating Lease Structure as the facility for this big purchase did not appear on their balance sheet

Who would use a Fully Maintained Operating Lease Facility?

A Fully Maintained Operating Lease Facility is a form of financing trucks or heavy equipment, for businesses looking to put a fixed cost on operating expenses.  In the current climate of decreasing profit margins for owner drivers and fleet operators, many businesses are moving towards fully maintained operating leases in an attempt to have more control over the profits they earn at the end of the year.

Heavy Vehicle Finance suggests that all clients discuss a particular funding scenario with their Accountant before making a decision on what product to use when thinking about truck finance. Even though this form of financing is becoming more popular, a tax accountant will advise as to whether or not a Fully Maintained Operating Lease would be suitable for the financial structure of their business.

To ask more questions about a Fully Maintained Operating Lease Facility

To discuss how a Fully Maintained Operating Lease can help you pin down the running costs of your business, please call one of our Finance Consultants on 1300 788 740. One of our specialists Finance Consultants will be able to discuss how the product works and how it will benefit you. Alternatively, you can fast track the process by completing our online finance pre-approval form.

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