Telecom equipment leasing options - comparing forms

COMPARING FORMS

The table below summarises some of the differences between the different telecom equipment leasing options.

CriteriaOperating LeaseFinance LeaseCash Purchase
Purpose/StabilityIdeal for rapidly depreciating equipmentFor assets that have a long usable life and retain their valueFor businesses that want to own the equipment and do not have cash constraints
Who owns the equipmentTelqom Canada – the business can make an offer to buy the equipment at the end of the termOwnerships transfers to the business after the last payment is madeThe Business
CashflowSpread evenly over the termSpread evenly over the termtOne off payment
Who carries the Residual Risk (sale price at the end of the term is less than was anticipated at the beginning of the lease)Telqom CanadaThe BusinessThe Business
End of Term OptionsMany- including continue to lease at a reduced rate, purchase the equipment, upgrade to new technology, return the equipment at no additional costOwnership transfers to the businessThe business owns the equipment
Who is responsible for equipment disposalTelqom CanadaThe BusinessThe Business
Who carries the risk of obsolescenceTelqom CanadaThe BusinessThe Business
Accounting – it is recommended to get advice from your accounting professionalNormally payments are an operating expense (off balance sheet)Appears on the balance sheet as both an asset and a liability. Lease payments are split into a principal and interest portion and depreciation can be claimedIs an asset on the balance sheet
Tax – it is recommended to get advice from your tax professionalNormally payments are an operating expense (off balance sheet) and are 100% tax deductibleAppears on the balance sheet as both an asset and a liability. Lease payments are split into a principal and interest portion. Depreciation and the interest are 100% tax deductibleIs an asset on the balance sheet and depreciation is tax deductible
GSTGST is added to each lease paymentGST is payable upfront on the amount of the equipment leased. There is no GST on each lease paymentGST is included in the purchase price