The true benefits of leasing are realised in different ways.
Benefits of Leasing
Benefits will arise from an administrative point of view, particularly with large fleets of equipment. Leasing of new tractors from Power & Earth will help ease the pressure on your employees who would have been tied up looking after a fleet of motor vehicles. They will be freed to spend time on more productive tasks. Power & Earth will take care of all major breakdowns. A phone call to us is all it takes. From a budgeting perspective, leasing provides certainty; there is a fixed cost for the lease of the asset that can be taken into account for forecasting and cash flow purposes.
With purchase of equipment, the market value generally falls far more quickly than the equipment can be depreciated. By leasing tractors, a company has the choice to switch to the latest equipment at the start of the lease, or receive a new machine next season. The economic risk of attempting to recoup the equipment’s residual value, either by on-leasing or selling, falls back onto Power & Earth, which is better placed to access resale markets than is the lessee company.
Tax Advantages of an Operating Lease
There are two types of leases for income tax purposes: a finance lease and an operating lease. Most leases of equipment are operating leases, which have a simpler tax treatment for the lessee than does a finance lease.
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Under an operating lease, the lessor’s objective is to “rent” the asset to a lessee for a return. The lessor retains the risk and reward of owning the asset. Under a finance lease, the lessor is essentially funding the lessee’s acquisition of the leased asset. It is generally the lessee who assumes the risks and rewards of ownership of the lease asset, the lessor’s objective being to derive “interest” income.