If you want to use your car predominantly for business purposes, and wish to ultimately own your vehicle at the end of the agreement term, Commercial Hire Purchase may be the right solution for you.
The Commercial Hire Purchase (CHP) agreement is simply a contract where the financier (the ‘owner’) allows you (the ‘hirer’) the right to possess and use a car or other vehicle in return for regular payments. A balloon payment (a final payment made at the end of the term - ideally this payment should be no more that the estimated value of the car at that time) is optional with a hire purchase agreement.
Upon completion of the Commercial Hire Purchase agreement, and following your final payment, full vehicle ownership is transferred to you.
Once you have decided on the vehicle of your choice, we can help you determine the most suitable term, taking into account the monthly sum you are planning to pay.
Monthly payments are then set for the entire contract term, giving you a reliable figure to plan your business spending, and structure your budget for the period of the agreement. To reduce your monthly commitment you can either opt for a longer term or incorporate a balloon payment at the end of your contract.
Upon completion of the Commercial Hire Purchase agreement, and following your final payment, full vehicle ownership is transferred to you.
»
Chattel Mortgage
Chattel Mortgage is a finance product for individuals, sole traders, partnerships and companies who value vehicle ownership.
The Chattel Mortgage (also known as a Secured Loan or Bill of Sales) is a car leasing agreement suitable for individuals and businesses, big or small. If you run a business through the cash method of accounting, you'll be able to claim back the GST component on the asset right away. The Chattel Mortgage is different from other car finance arrangements because of the fact that you can claim back the GST on the purchase price of the vehicle as soon as you complete your next BAS statement. This is because the invoice from the dealer is made out to you, so you are able to claim the vehicle tax benefit as the owner.
Chattel Mortgage payments are usually paid in advance with a balloon payment option at the end. The balloon option is entirely up to you and depending on your business cash flow requirements you may include a balloon to reduce the monthly repayment. Chattel Mortgage terms range from 12 months to 60 months.
Under a Chattel Mortgage the finance provider or bank funds the purchase of the vehicle. The customer takes ownership of the motor vehicle at the time of purchase. Once the contract is completed, the mortgage is removed giving the customer clear title to the motor vehicle.
»
Chattel Mortgage Benefits
A Chattel Mortgage can appeal to companies, partnerships, trusts and sole traders and has many attractions. Some of the benefits include:
Depreciation on the motor vehicle and the interest component of the rental are tax deductible if it is used to generate income or the expense is required in carrying on a business.
The interest rate and monthly repayments are fixed for the term of the Chattel Mortgage.
Once the Chattel Mortgage is in place, you will be able to claim back the GST component as soon as you complete your next BAS statement; this allows your cash flow potential to grow.
GST is not charged on the monthly repayment or balloon payment.
Terms range from 12 to 60 months.
Also when setting up the Chattel Mortgage agreement, you will have the option of either choosing to finance the total purchase price, use a deposit, do a trade in or add a final lump sum balloon payment to reduce the repayments.
At the time you agree to the terms of the Chattel Mortgage option, you are deemed owner of the asset.
»
Taxation Implications of a Chattel Mortgage
With a Chattel Mortgage agreement, there are some great tax benefits that are available. Being that the car dealer makes out the invoice in your name, you are deemed owner of the vehicle. This then allows you to claim back the GST component of the asset on your next BAS statement that's if you use the cash method of accounting for your business. Once the GST component is claimed back, you can then use the money to help pay off the Chattel Mortgage finance or you can use the money to assist with the cash flow of your business.
You will also be able to claim the depreciation and interest rates of the finance as expenses for tax deductions. This will also help your businesses cash flow increase.
Where the vehicle is used for business use, the hirer can claim "interest and depreciation". That is interest on the lease payments and depreciation up to the luxury car tax threshold or depreciation limit of $57,180
We however advise you to consult your tax agent for current ATO regulations. We also provide consulting services for taxation, if you wish to avail or services.
