Asset Finance Quotation System  

 
What is AFQS?TrialContact Us

Tax Loss Example

A lessor writes a lease for $100,000 with the drawdown occurring at the start of the financial year.

Details are as follows:

Term: 60 months
Residual: $25,000
Rentals: $2,187.13 per month in advance
Depreciation Rate: 24% p.a. straight line (prime cost)
Cost of Funds: 15% p.a. convertible monthly

The lessor has to borrow 100% of the funds invested in each new lease written. In the first year, the effect on the lessor of entering into the transaction is as follows:

Income: 12 × 2,187.13 = $26,245.56
Less depreciation: 24% × 100,000.00 = ($24,000.00)
$2,245.56
Less funding cost @ 15% p.a. on a declining balance: ($13,000.00) (say)
Net effect on taxable income: ($10,800.00)

Note that although the lease in isolation returns a positive taxable income in the first year, the overall effect on the lessor is to generate a large taxation loss in that year.

See also:
GlossaryActuarial Rate of Return (Net Yield)Calculation FunctionsCost of FundsDual Rate of ReturnFinance ComparisonInput Tax Credit (ITC)Internal Rate of Return (IRR)Luxury Car Tax (LCT)Notional ITCNotional ProfitRate PremiumRepayment StructuresTax Loss ExampleTax ShelterVendor Subsidy
Goods and services tax (GST)Luxury car tax (LCT)Luxury Car Tax Rate and Thresholds
Technical Summary
Installation instructions and technical requirements.
User Guide
Explanation of the main user interface features.