Below are Questions And Answers About Commercial Hire Purchase Installments In Australia.
Commercial Hire Purchase
What is commercial hire purchase (CHP)?
A commercial hire purchase (CHP) is a commercial finance product where you hire the vehicle from the lender for a fixed monthly repayment over a set period. Otherwise known as corporate hire purchase, hire purchase or offer to hire. It’s a good choice if you are registered for GST on an accruals or cash accounting basis.
The lender agrees to purchase the vehicle on your behalf and then hires it back to you over a set period. You’ll have full use of the vehicle for the term of the contract, you just won’t be the owner. At the end of the term, when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.
Flexible contract terms ranging from 12 to 60 months (one to five years)
Residual value (balloon or final instalment) may be placed on contract
A tax deduction may be available when the vehicle is used for business purposes*
GST is not charged on the monthly rental or residual payment (but is charged on fees and interest)
Customers registered for GST may be able to claim the GST in the vehicle price, fees and interest*
* Please refer to your accountant for eligibility.
Common questions about commercial hire purchase
What is a commercial hire purchase and how does it work?
A commercial finance product where you hire the vehicle from the lender for a fixed monthly repayment over a set period. Otherwise known as corporate hire purchase, hire purchase or offer to hire. It’s a good choice if you are registered for GST on an accruals or cash accounting basis.
The lender agrees to purchase the vehicle on your behalf and then hires it back to you over a set period. You’ll have full use of the vehicle for the term of the contract, you just won’t be the owner. At the end of the term, when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.
What are the benefits?
Benefits include:
Flexible loan repayment periods, ranging from two to five years
The option to set a final balance (Residual Value) payment of between 0 and 50% of the full loan amount (depending on the type and age of the vehicle) to reduce monthly repayments
The option to put down a deposit to reduce the amount borrowed
The potential to claim tax deductions if the car is being used for business purposes
The potential to claim Input Tax Credits if you are registered for GST
A commercial hire purchase taken out with Stratton Finance also has these additional benefits (subject to lender selection):
Fixed interest rate and monthly repayments for the duration of the loan
Repayments can be aligned with your or your business’ cash flow
What tax and GST can I expect to pay on a commercial hire purchase?
If the car is being used for business purposes, you may be able to claim a tax deduction on the loan interest charges, as well as on the depreciation value of the vehicle, up to the Depreciation Limitset by the Australian Tax Office.
GST is charged on the purchase price of the vehicle and, if you’re registered for GST on a cash basis, you should be able to claim this as an Input Tax Credit on your next Business Activity Statement.
You will also pay GST on any term charges or fees.
Who should choose a commercial hire purchase?
Both businesses and individuals can apply for a commercial hire purchase, as long as the car is being used predominantly for business purposes.
A commercial hire purchase is a good choice for those who are registered for GST on an accruals or cash accounting basis, as you should be able to claim the GST in the vehicle’s purchase price as an Input Tax Credit on your next Business Activity Statement. You should also be able to claim GST on any interest charged as Input Tax Credits over the lifespan of the loan.
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