Myfleet Commercial Hire Purchase (CHP)

A Commercial Hire Purchase has historically been the go-to finance solution for both small business and individuals on a car allowance or with significant business usage. Recent changes to the tax rules around GST have made CHP financing a little less attractive to individuals (see Chattel Mortgage). However CHP still has a place in small business financing for passenger cars, commercial vehicles, plant, equipment or any other material asset with the GST that is now being applied fully claimable by a suitably registered business. Myfleet has a great deal of experience is setting up CHP arrangements and can provide immediate quote turnaround combined with a simple no fuss application and settlement process.

What is Commercial Hire Purchase?

A Commercial Hire Purchase 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 GST is charged on the interest and fee component of the repayments (claimable) and the usual rules of depreciation and deductions apply in the same way as if you owned the vehicle.

Features and Benefits of a Commercial Hire Purchase

  • A CHP allows for a term repayment arrangement and improved cash flow
  • A registered business can claim GST, depreciation and interest charges
  • Balloon payment at end of loan period can be set by client
  • Asset is owned by client following balloon payment, especially important when it involves plant and equipment finance.

Will a Commercial Hire Purchase (CHP) suit me?

A CHP is suitable for companies, partnerships and sole traders who account for GST on an accruals (accumulation) basis. It is also very suitable for individuals who receive a monthly car allowance from their employer as compensation for using their own car for business. For an individual to get the best value from a CHP, business use must be a substantial amount of the overall use.

Tax implications of a Commercial Hire Purchase (CHP)?

Customers registered for GST can claim an appropriate percentage of the GST in the vehicle price.

Subject to level of business use percentage most instances businesses can claim the GST as a lump sum on their next BAS. Other businesses can claim the GST in installments over the term of the contract.

GST is not charged on the monthly repayment or the final installment lump sum.

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

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