Vehicle Lease vs Buy: What New NZ Company Directors Need to Know

Lease or Buy? A Key Decision for New NZ Company Directors

Within the first few months of incorporating, many NZ directors need to decide how their company will handle vehicles -- whether for client visits, deliveries, site work, or general business use. The choice between leasing and buying has significant tax, cashflow, and FBT implications.

Leasing (Operating Lease)

An operating lease means the company pays a monthly fee to use a vehicle owned by the finance company. Key points:

• Monthly payments are fully tax-deductible (to the extent of business use)
• No large capital outlay -- preserves cashflow in year one
• The vehicle does not appear on your balance sheet as a fixed asset
• Fringe benefit tax (FBT) still applies if the vehicle is available for private use
• At lease end, you return the vehicle (or pay a residual to buy it)

Buying (Finance Purchase or Outright)

Buying a vehicle outright or via a hire-purchase agreement means the company owns it. Key points:

• Depreciation is claimed each year (not the full cost in year one)
• GST on the purchase price is claimable if the company is GST-registered
• Interest on finance is deductible
• FBT applies to private use
• The asset appears on your balance sheet and can be sold later

Fringe Benefit Tax (FBT)

FBT is a key consideration for both leasing and buying. If a company vehicle is available for an employee or shareholder-employee to use privately (even just by being parked at home overnight), FBT applies. The quarterly FBT cost can be significant -- get advice from your accountant before committing.

What to Ask Your Accountant

A chartered accountant or tax advisor can model the after-tax cost of both options for your specific situation. Key questions: What is your marginal company tax rate? Is the vehicle for a shareholder-employee or a staff member? What is the private-use percentage?

Need an accountant? Connect with a FreshFirms-vetted NZ accounting firm.