Healthy money flow is crucial to any business. Right alongside purchase of key assets to keep productivity and business edge. Traditionally commercial hire purchase finance has offered commercial borrowers the very best of both worlds. Immediate use of crucial business vehicles and apparatus minus serious upfront capital outlay. As of 1 July 2012 though, all this has changed.
Companies, partnerships, sole traders, even vehicle allowance-eligible staff. Every business borrower incurs extra GST liabilities under the revised commercial hire purchase tax treatment. While such GST expenses can later be claimed back in the most part, the result on commercial cash flow is great. So it's essential that all businesses wanting commercial business financing get up to speed with these commercial hire purchase changes. While doing so , however , it's critical to notice that all is not lost. Amid such significant change to commercial hire purchase finance, one thing stays unchanging ? chattel mortgages. This unchanged commercial finance tool shines a beacon of cost savings and efficiency for embattled business borrowers.
Commercial hire purchase: what has changed?
Historically commercial hire purchase agreements needed payment of GST only on:
- Purchase price of the asset; or
- Upfront value of the asset
From 1 July 2012, GST is also charged on:
- All interest; and
- Any costs
Borrowers must settle these GST charges on settlement. Either by upfront payment or addition to the CHP loan. Now definitely GST registered borrowers can progressively claim these expenditure back over the loan lifetime. Input Tax Subsidy supplies the vehicle for such claims. Yet meanwhile, borrowers experience a cashflow insufficiency and reduced cost potency. Definitely reason enough to think about alternative finance solutions that preserve cash flow and lower liabilities.
One such finance solution is the Chattel Mortgage. Here a borrower takes speedy possession of the funded asset on purchase. Meanwhile, the bank holds the chattel as security. Now from a GST viewpoint, chattel mortgages offer borrowers similar conditions to traditional commercial hire purchase. Before modified tax treatment bumped up cash outlay. Under a chattel mortgage, GST is owing on the asset purchase price only. That suggests charges, interest, mortgage repayments and residual price are all GST free. Plus borrowers can claim back their GST expenditure upon lodgement of their next BAS statements. Simple.
CHP vs chattel mortgage: enroll expert help in making your choice
Tax can be overwhelming enough. Yet when new tax rules apply to a previously favoured commercial lending tool, it will send any borrower into a spin. Be certain new commercial hire purchase tax treatment does not get the best of you. Get consultant support in understanding the revised GST implications and other options like chattel mortgages. Vet finance broker Natloans places specialists on hand to guide you thru all this and more. So you can still acquire necessary assets without being drained of crucial business cash flow.
Mary Nebotakis ? has a B.Economics Dip.Financial Services Cert IV Workplace Learning Assessment. On her website she has got many interesting videos and articles on commercial hire purchases. You will also find more information on chattel mortgages.
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