TAX DEDUCTABLE “OFF-BALANCE SHEET” ASSET FINANCE

What is a “Rental”?

A rental agreement is a financing tool that is used to finance an asset for your business, but which is NOT your asset or which does not become your property automatically.  Expenses towards a rental agreement (the nett installment, insurance & maintenance) are tax deductable in terms of the S.A. Tax Act. 

You will also receive a monthly VAT invoice for your VAT return, provided you are VAT-registered.  You can see that a “Rental” can be very beneficial to your business.  Your bookkeeper / auditor will be able to advise you in more detail.

How does it work?

I will give a short explanation on the correct way this matter should be treated:

The dealer / supplier of the equipment will “sell” the goods / equipment to a client, who fills in a credit application form that the dealer will take to a Bank or Finance House. The dealer / supplier therefor applies for finance on behalf of the client.  Bear in mind that a Rental Agreement falls just as much under the Credit Act as any other type of finance. 

If the Bank / Finance House approves the application for credit, the client must provide all supporting documentation as is required by Law.  This documentation includes the “FICA” (Financial Intellegence Centre Act) requirements like a copy of your ID (or ID’s of the directors / members of the business), Telkom / Electricity account (which indicates your physical address).  Further to this the Bank / Finance House will ask you for proven information regarding your financial stability, income & so forth. This may include: latest audited financial statements, bank statement for the last 3 – 6 months, copies of the registration document of your business, resolutions, cancelled cheque to prove your bank account, etc. .

Should your application be approved, the dealer / supplier will invoice the Bank / Finance House who will buy it from the dealer / supplier.  You as client will then receive a VAT invoice from the Bank / Finance House for your monthly rental payments until the last installment has been paid.  

Banks are not “asset dealers”, but “money dealers”, so they will not be interested in keeping ownership of the goods, but normally make an arrangement with the dealer / supplier on a specific transaction to transfer ownership back to the dealer / supplier after expiry of the rental agreement, whether such ownership is being paid for at that stage or not. This is part of  the agreement between the dealer / supplier and the Bank / Finance House and has nothing to do with the client.  The Dealer  / Supplier may then do with the goods as they see fit: “sell” it to the client or rent or sell it outrightly to anyone else.

Ownership

You do NOT get automatic ownership of the goods or equipment that was discounted / financed on a rental agreement, because you are allowed the Tax deductions.

It is, however, possible to get ownership (discussed hereafter) of the equipment after having paid the last installment. (In the event of a Lease agreement, you get automatic ownership of the goods / equipment / vehicle after payment of the last installment on your lease agreement to the bank.)  Equipment financed in this way is therefor RENTED and not bought, as is commonly accepted.  This makes a big difference when it comes to ownership.  You are NOT “paying off” the goods, but merely RENTING it from the Bank / Finance House. 

Should you wish to obtain ownership of the goods afterwards, you may negotiate this with the Bank / Finance House and/or the Dealer / Supplier.  Ownership is therefor vested in the Bank / Finance House for the duration of the rental agreement.

Legal Entities

Any Legal Entity may apply for Rental Finance, provided that it adheres to the requirements for finance. Some examples of different Legal Entities are: Public Companies, Private Companies, Close Corporations, Trusts, Partnerships & Sole Traders.

Insurance

You should remember that ALL goods discounterd on a Rental basis must be insured at all times. You may provide proof of you own insurance policy or the Bank / Finance House will arrange it for you.

Normally these institutions can provide you with a much lower premium than your own insurnace Broker, as they have thousands of items on their “master policy” that must be covered at all times.  This enables them to negotiate better premiums for you.  You may also contact us for a quotation by clicking here.

General

You may already have equipment in mind that you need to rent or you may be a vendor that wants to supply such a service to your clients. Let us arrange this for you anywhere in South Africa. Test our speedy turn-around time on approvals. We offer the best rates and best service.

For more information fisit our website at www.selectafin.co.za or email us at  This e-mail address is being protected from spam bots, you need JavaScript enabled to view it . You may also direct any enquiries regarding finance to us to the same email address. Alternatively call me at 015291 0726

  Simple quick Application form click here