What is a full service lease?

You agree the term, the kilometre allowance and the services to be included, then the lessor sources the vehicle and sets up the fleet administration, including maintenance schedules and telematics if that is part of the package. From delivery you pay one monthly amount that covers the finance and the service bundle.

The provider then coordinates scheduled servicing, tyre replacement and registration, and roadside assistance is often included. The contract will also set out the excess-kilometre charges, the service level agreement for repair response times and authorised repairers, and the termination fee if you end the lease early. At the end of the term you return the vehicle, extend the lease or replace it. Buying it at the pre-agreed residual is only available where the contract provides for it, and a pre-agreed right to buy can change the tax character of the lease.

Most full service leases bundle the finance or rental charge, scheduled servicing and preventative maintenance, tyre replacement within agreed wear and kilometre limits, registration and compulsory third party (CTP) premiums, roadside assistance and towing, and fleet reporting such as maintenance logs and cost-per-kilometre reports. Some add access to authorised service networks, warranty management and optional telematics.

Fuel and tolls, traffic and parking fines, damage above fair wear and tear, excess kilometres beyond the allowance, aftermarket accessories and unapproved modifications usually sit outside the package. Some providers include comprehensive insurance while others require you to insure the vehicle yourself, so check whether insurance, fuel management and accident administration are covered before comparing prices.

The monthly payment is made up of a depreciation or lease charge (the vehicle's cost less the residual, spread over the term), the lessor's interest and margin, a maintenance pool that provides for servicing, tyres and wear items, administration and risk fees, and GST where it applies. The residual value directly affects the monthly payment because only the difference between the vehicle's price and the residual is spread over the term.

Driving beyond the agreed kilometre band triggers excess-kilometre charges set per kilometre in the contract, and heavier use tends to lift wear-related costs too. That is why comparing providers on total cost of ownership rather than headline rent gives a truer picture.

GST is generally payable on the lease payments and on the maintenance charges, and a business registered for GST can usually claim GST credits on both, apportioned for business use. Lease payments under an operating-style arrangement such as a full service lease are generally deductible as a business expense over the term, again subject to apportionment. Keep detailed records for BAS reporting and GST claims.

If an employee uses the vehicle privately, the arrangement can create a fringe benefits tax liability, and the ATO has specific rules for car fringe benefits. A novated lease sits inside a salary packaging arrangement and carries different FBT implications. Confirm the accounting presentation and tax treatment with your accountant.