There are pro’s and con’s using any of the various methods. The main methods are:
1) Outright purchase (if you have the funds available and don’t have another use for them). The advantage of this is there is no further cost of the vehicle other than running costs. The disadvantage is you have spent your money and don’t get a deduction for interest or finance costs.
2) Chattel Mortgage. This involves purchasing the vehicle and a lender funding the purchase and taking security over the vehicle. You are locked into regular repayments and will pay interest and finance costs (which are tax deductible over the term of the finance) but don’t need to find the funds to buy the vehicle at the start. If you are financing your purchase this method works best for claiming GST upfront where you are registered for GST on a CASH basis.
3) Hire Purchase. Similar to the Chattel mortgage but with a distinction when it comes to GST. Instead of being able to claim the GST for the purchase at the start, you have to claim it over the term of the finance if you are registered for GST on a CASH basis.
4) Operating Lease. Under this arrangement, you also make regular monthly repayments however the structure is different. You don’t own the car, the finance company does (and always will unless you choose to purchase it when you reach the balloon). Because of this, the payments you make are treated similarly to rent payments as an outright deduction and you claim GST on each payment. There is no deduction for depreciation for the vehicle under operating leases. Another name for an operating lease is “off balance sheet finance”.