An operating lease is a commercial finance product that enables a financier to purchase energy efficiency equipment and then rent it to your business. You pay regular instalments to the financier. As the instalments are considered rental payments, you do not own the asset. Once the final lease payment has been paid, you take ownership of the energy efficiency equipment.
No upfront capital or security
Operating leases may allow energy efficiency projects to be undertaken without a business requiring up-front capital or using existing business assets as security.
Realising savings now
Businesses that use finance for their energy efficiency projects can realise immediate cash flow benefits. Energy efficiency projects can result in higher savings than loan costs.
Tax and accounting
The financier owns the asset resulting in an off-balance sheet finance arrangement for your business. The business pays instalments back to the financier which may be deductable at the company tax rate. Note that the change to the Australian Accounting Standard will result in all operating leases coming on-balance sheet as of 1st January 2019. It’s important to seek specific advice from your tax professional.
As the business is considered the owner of the asset, the business bears the risk associated with owning the asset.
Businesses can also receive a discount on energy efficient products that are installed by accredited Victorian Energy Upgrade (VEU) providers. A list of these products and providers can be found on the ESI website.
Visit victorianenergysaver.vic.gov.au for more information.
The Clean Energy Finance Corporation (CEFC) has developed an operating lease finance offering with co-financiers which specifically targets the energy efficiency needs of small businesses, manufacturers, the agricultural sector and small-scale commercial property.
Capital lease finance identifies technologies that meet the CEFC’s investment guidelines and offers an operating lease with 0.7% discount comparable to standard operating lease products. This program is offered by a range of financiers.
Visit https://www.cefc.com.au/where-we-invest/asset-finance.aspx for more information.
Correct as at January 2018.
Level 28, Urban Workshop,
50 Lonsdale Street, Melbourne VIC 3000
Phone (03) 8626 8700
Published by Sustainability Victoria.
Sustainable Finance – Operating Lease
© Sustainability Victoria January 2018
Disclaimer: The information provided in this document is general advice only. It does not take into account your particular needs or objectives and does not constitute legal or accounting advice. Accordingly, any comments or statements made are not a recommendation that a particular course of action is suitable for you and you need to seek your own legal, tax and accounting advice in relation to your specific circumstances.
This information is true and correct as of January 2018
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