Commonly known as ‘Operating Lease’, Rental is best explained as “paying for the use of equipment owned by someone else”. In this case, the Financier is the owner.

As the equipment is not yours, it is not carried as an asset or liability. It is “Off Balance Sheet Funding”.

Assuming the equipment is for 100% business use, so are the instalments 100% tax deductible as an operating expense.

Rental is best for assets which depreciate rapidly and generally need replacing or upgrading, at the end of the term. Computers, Telephone Systems and most Office Equipment are commonly suited to Rental.

In the end, your payments have been 100% tax deductible and you haven’t been left with a piece of obsolete equipment. You can simply upgrade, purchase, continue renting at discounted instalments or hand the asset back.