Commercial Hire Purchase
A commercial hire purchase is a financing option for an asset (eg motor vehicle, truck, bobcat, etc) that will be used primarily for business use. It is also known as a CHP & corporate hire purchase.
How does a commercial hire purchase work?
A commercial hire purchase agreement is where the finance lender agrees to purchase the asset on behalf of the customer and the customer hires the asset from the finance lender over an agreed period of time for a fixed monthly repayment.
The ownership of the asset is not transferred to the customer until the final balloon payment has been made.
Under a commercial hire purchase agreement, the customer is the registered owner of the asset and is responsible for all costs associated with maintaining, running and insurance for that asset.
Commercial hire purchase features
- Low establishment fees and monthly fees, no payout penalties
- Commercial hire purchase terms range from 1 to 5 years
- Interest rate is fixed for the term
- Commercial hire purchase monthly repayments are fixed for the term
- Customer can claim the interest and depreciation as a tax deduction
- A Balloon can be structured to reduce repayments
Commercial hire purchase taxation implications
A commercial hire purchase allows the customer to claim an input tax credit for the GST component of the purchase price, provided that the customer is registered for GST. Where the customer is using the accrual accounting method, the input tax credit may be claimed on the next Business Activity Statement (BAS). If the cash method of accounting is used, the GST can be claimed as an input tax credit over the term of the contract.
The monthly repayment or balloon amount is not subject to GST.
Where the asset is used for business use, the customer can claim interest and depreciation as a tax deduction.
Need further information?
If you require further finance assistance, please do not hesitate to call us on 1300 788 371 or email at info@integratedfinance.com.au.