Rental / Operating Lease
This contract allows for the use of an asset, but does not convey rights of ownership of the asset.
An operating lease is not capitalised; it is accounted for as a rental expense in what is known as "off balance sheet financing”. Operating leases have tax incentives and do not result in assets or liabilities being recorded on the lessee's balance sheet, which can improve the lessee's financial ratios. GST is claimed on instalments being paid not at the time of purchase.