Commercial Hire Purchase (CHP)

Commercial Hire Purchase (CHP) is a commercial car finance product. With CHP, the finance company purchases the motor vehicle on behalf of the client, and then allows use and possession of the vehicle (“hires”).

 

Regular (usually monthly) payments are required. At the end of the agreed term, and following payment of any residual or “balloon”, ownership is transferred to the client. The client can of cause, “trade-in” the vehicle, or refinance the residual. No GST is charged on the monthly repayments, or on the residual. Clients who are registered for GST on an accruals basis can generally claim the GST contained in the purchase price of the vehicle as an Input Tax Credit on their next BAS. When the vehicle is used for business purposes, under CHP tax deductions can be claimed for depreciation on the vehicle and interest charged on the loan.
 

Chattel mortgages

A Chattel Mortgage is used to purchase a motor vehicle (called “chattel”). The purchaser has the ownership of the motor vehicle. The finance company takes out a “mortgage” over the vehicle by way of an ASIC-registered Fixed and Floating Charge to provide security for the loan. Regular repayments are made on the loan.

 

At the conclusion of the loan term, the client has the choice of paying any residual (balloon) balance, “trade in” the vehicle or re-finance the residual value. Once the residual value is paid, the finance company removes the Charge. Clients who are registered for GST on an accruals basis can generally claim the GST contained in the purchase price of the vehicle as an Input Tax Credit on their next BAS.

 

When the vehicle is used for business purposes, tax deductions can generally be claimed for depreciation on the vehicle and interest charged on the loan. No GST is charged on the monthly repayments, or on the residual.
 

Leasing

Leasing is a well known form of commercial finance. With a motor vehicle lease, the financier purchases the vehicle on behalf of the client, and then leases the vehicle to the client in return for monthly rental payments.

 

At the end of the term of the lease, the client has the option of purchasing the vehicle upon payment of the final instalment (residual value). Alternatively, the client may choose to “trade in” the vehicle, or re-finance the residual. Lessors do not pay GST on the purchase of the vehicle, as the GST is claimed back as an Input Tax Credit by the finance company. GST is charged on the monthly lease payment.