Leveraged Lease in Australia: 2025 Guide for Smarter Asset Financing

In a year marked by rising interest rates and evolving tax rules, savvy Australian businesses are turning to leveraged leases as a flexible, cost-effective way to acquire vital equipment and infrastructure. But what exactly is a leveraged lease, and why is it making headlines in 2025?

What is a Leveraged Lease?

A leveraged lease is a three-party financing arrangement designed for big-ticket assets like aircraft, mining equipment, or commercial property. Here’s how it works:

• The Lessee (usually a business) uses the asset and makes lease payments.

• The Lessor (often a financial institution or syndicate) owns the asset and provides it to the lessee.

• Lenders provide a large portion of the funds to the lessor, secured by both the asset and the lease payments.

The lessor puts up a fraction of the total asset cost (sometimes as little as 20%), while lenders contribute the rest, making the arrangement “leveraged.” The lessee makes lease payments, which are used to pay down the loan, and the lessor benefits from tax deductions and potential residual value gains.

Why Leveraged Leases Are Booming in 2025

Several trends and regulatory changes are driving renewed interest in leveraged leases this year:

• ATO’s Depreciation Updates: The 2025 Federal Budget confirmed the continuation of immediate asset write-off thresholds for qualifying assets under $30,000, but for high-value assets, depreciation is back in focus. Leveraged leases let lessors claim depreciation, often resulting in more attractive terms for lessees.

• Interest Rate Environment: With the RBA’s cash rate holding at 4.1%, traditional loan repayments are more expensive. Leveraged leases enable lower upfront outlays for businesses, freeing up capital for growth.

• ESG and Green Asset Funding: As sustainability reporting becomes mandatory for large firms in Australia from July 2025, companies are using leveraged leases to finance renewable energy infrastructure, EV fleets, and sustainable plant upgrades. Lessors with green credentials can offer even better terms.

For example, a mining firm in WA recently structured a $50 million leveraged lease to acquire autonomous haul trucks, aligning repayments with projected cash flows and minimising balance sheet impact.

Key Advantages and Considerations

Leveraged leases aren’t just for the big end of town. Here’s why they’re gaining ground:

• Off-balance-sheet benefits: With the right structure, lessees keep major liabilities off their balance sheet, improving financial ratios and borrowing capacity.

• Tax efficiency: Lessors claim depreciation and pass on some benefits to lessees through lower lease rates.

• Customisable terms: Payments can be structured to match business cash flows, with options for balloon payments or flexible end-of-lease buyouts.

However, leveraged leases are complex. Risks include:

• Residual value risk: If the asset’s value drops sharply, the lessor or lessee may be exposed at lease-end.

• Legal and tax structuring: Recent ATO guidance (TR 2025/3) emphasises the need for robust documentation to avoid reclassification as a loan or operating lease, which can impact tax treatment.

• Interest rate risk: If rates rise, lessors may seek to pass on increased funding costs in new deals.

Who Should Consider a Leveraged Lease?

Leveraged leases are most attractive for:

• Businesses acquiring high-value assets ($2M+), especially where ownership at lease-end isn’t essential

• Companies seeking to optimise balance sheets or improve key ratios

• Firms in capital-intensive sectors: resources, transport, logistics, utilities, and now, renewables

Small and mid-sized businesses are increasingly accessing leveraged lease structures as more Australian non-bank lenders and fintechs enter the market, often with digital onboarding and streamlined approvals.

The 2025 Outlook: More Flexibility, More Competition

With economic headwinds and ongoing supply chain challenges, the ability to quickly finance and deploy critical assets is a game-changer. Leveraged leases provide that flexibility, and the market is responding with new products tailored to mid-market and green assets. Expect further innovation, especially as digital platforms make syndicated funding and documentation more accessible.