Myfleet Chattel Mortgage

Since the tax office changes to the treatment of GST on a Commercial Hire Purchase the Chattel Mortgage represents a new trend in individual and small business financing for motor vehicles both passenger and commercial, as well as plant, equipment and other assets. The concept, structure and repayment scenario is the same as a CHP in that it is simply a loan and repayment finance arrangement with a balloon at end of term. The fundamental financial difference between a Chattel Mortgage and a CHP is that there is no GST in the repayments for a Chattel Mortgage.

What is a Chattel Mortgage?

A Chattel Mortgage is a straight forward loan and fixed repayment scenario typically with a balloon (lump sum) payout at the end of the loan period. The idea of structuring a loan like this is to help preserve the cash flow and keep month-to-month payments to a minimum allowing investment in other areas of the business.

The balloon payment at end of the loan period is set by the customer, and can be zero or any value up to the likely market value of the asset at end of the loan period. The higher the balloon is set the lower the repayment value and vice-versa. The loan period will typically range up to 60 months but can be longer depending on the type of asset being purchased. The length of the loan period selected will affect the repayment amounts.

From a tax perspective the usual rules of depreciation and deductions apply in the same way as if you owned the vehicle.

Features and Benefits of a Chattel Mortgage

  • A Chattel Mortgage allows for a term repayment arrangement and improved cash flow
  • There is no GST applicable which is especially beneficial to individuals
  • Balloon payment at end of loan period can be set by client and can be as low as zero
  • Asset is owned by client following balloon payment, especially important when it involves plant and equipment finance.

Will a Chattel Mortgage suit me?

Chattel Mortgages are typically suitable for companies, partnerships and sole traders who are registered for GST It enables them to claim the GST in the vehicle's price up-front.

Tax implications of a Chattel Mortgage?

GST is charged in the purchase price of the vehicle but not on the monthly rental or the final installment lump sum.

Customers registered for GST can claim an appropriate percentage of the GST in the vehicle price when they next lodge their BAS, rather than over the term of the loan.

Customers using the vehicle for business can claim depreciation (up to the depreciation limit) and a tax deduction on the contract interest charges.

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