As the name suggests, a Commercial Hire Purchase allows you to hire the equipment for the period of the finance and upon the last payment being made, you then take ownership or purchase the equipment. With a recent change in tax laws as of the 1st of July 2012, there is now little difference in the tax treatment of a commercial hire purchase compared to a chattel mortgage. This means that you may now claim the entire GST on the purchase immediately and depreciate the equipment, just as if it were a cash purchase. This is a suitable form of finance for longer life assets that are core to the business – e.g. plant & equipment and vehicles.
Under recent tax changes, GST is now also charged against the terms charges of a commercial hire purchase which means that the payments are a little higher than a Chattel Mortgage – however is claimed back through your GST BAS cycle.
Traditional form of equipment loan.
Equipment is owned when the last payment is made.
Payments are a Capital expense which include a degree of expendable interest cost.
Is reported on your balance sheet as a debt or loan.
GST is claimed upfront on the entire purchase price.
Finance the equipment cost only.
Ability to set a residual if required to lower the payments, however not required.
*This information is not intended to constitute taxation advice and does not take into account your financial cirucmstances. Refer to your accountant for taxation advice.
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