Your next truck: to buy or to lease?

Posted on Monday, October 23, 2017 - 10:58

Your big rig is the heart of your business. Like any business, you need to make as much profit as possible. How can you get cash flowing and keeping it that way when you need a new - or several new – trucks?

Of course, the toss-up is between buying a truck and leasing one. In 2015, via the Truck Industry Council Report, the Australian Equipment Lessors Association reported the Truck and Trailer segment of Equipment Finance amounted to $5.7Bn, or 17% of total Equipment Financing in Australia. They also estimated the operator leasing and rental segment was an estimated $300m.

Buying your truck

Buying a truck means you are adding an asset into your business, which can influence your profit margin. When you do buy a truck or commercial utilities or van for business purposes, you may claim depreciation and interest payments back through tax. In many cases, with a chattel mortgage or hire purchase, you can claim the GST in the purchase price on your BAS. Savvy CEO Bill Tsouvalas explains the difference between these two loans:

“A chattel mortgage is just like any other mortgage that uses an asset as security; a lender gives you money to buy a truck, and you pay the lender back with interest. Once you pay the mortgage off you keep the truck. A hire purchase works the same way, but you do not retain ownership until you’ve paid off the loan. This may be good for your tax position. You should ask your finance officer or accountant for advice on which is better for your company.”

You may also claim the full GST input tax credit as another tax incentive. However, like all vehicles, you drive away with 20% hit to the resale value. According to the TIC report, the price of maintenance influences 87% of a business’ decision to buy a truck. If you buy, you are on the hook for maintenance, insurance, fuel, and modification costs. Of course, you are free to modify the truck as you please.

Leasing your truck

Leasing a truck might be a good choice if you want a new truck regularly, and are taking on special, short- to medium-term projects. Leasing usually comes in two forms: operating leases and finance leases. Operating leases is like a long term hire of the truck. Your company pays monthly (or fixed-term) repayments during the term of the lease. Leases also allow you to offset payments against taxable income, as the ATO allows you to claim them as business expenses. You also don’t have to worry about maintenance, fuel, and insurance costs. Financial leases are almost identical, except you have an option to buy the truck at the end of the lease. While this seems good – you get to minimise tax – you end up with nothing to show for it. There’s no asset at the end of a lease.

So what is best?

“At the end of the day, it’s how you want your business to operate,” Tsouvalas says. “If you want flexibility, leasing may be better. Buying is favourable if you want to build your assets and expand. It’s always best to ask a financial advisor before making a hard decision.”

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