The Aussie Chief explains and provides information on this increasingly popular Car Financing option "Commercial Hire Purchase", this includes

• What is a Commercial Hire Purchase?
• How does a Commercial Hire Purchase work?
• Benefits of a Commercial Hire Purchase
• Taxation Implications of a Commercial Hire Purchase
• Who does a Commercial Hire Purchase suit?
• Commercial Hire Purchase Terms and Balloons

What is a Commercial Hire Purchase?

A Commercial Hire Purchase is a business finance product where the customer hires a motor vehicle from the finance provider or bank for a set monthly repayment over a set term, normally 12 to 60 months

Commercial Hire Purchase is also referred to as a Corporate Hire Purchase, Hire Purchase, Asset Purchase or Term Purchase and is often abbreviated to CHP or HP. Despite the many names, a Commercial Hire Purchase is normally the Car Leasing option most widely used throughout Australia

How does a Commercial Hire Purchase work?

The Commercial Hire Purchase agreement is a contract where the finance provider (the "owner") gives the hirer "You" possession and use of a motor vehicle in return for a regular fixed monthly repayment.

Once the final payment or balloon is made, the "hirer" takes ownership of the motor vehicle.

A Commercial Hire Purchase is generally suitable for companies using the "accruals" method of accounting for Goods and Services Tax (GST) or for individuals who use their motor vehicle for predominately business related purposes.

Commercial Hire Purchase Benefits

A Commercial Hire Purchase can appeal to both companies and individual's and has many attractions. Some of the benefits include:

• Depreciation on the motor vehicle and the interest component of the rental are tax deductible if it is used to generate income or the expense is required in carrying on a business
• The interest rate and monthly repayments are fixed for the term of the Commercial Hire Purchase
• If you registered for GST, you can claim the GST on the vehicle price
• GST is not charged on the monthly repayment or balloon payment
• Terms range from 12 to 60 months
• A Commercial Hire Purchase can be arranged with no deposit (100% finance) or an amount entirely up to you

Taxation Implications of a Commercial Hire Purchase

A Commercial Hire Purchase allows a GST registered customer to claim an input tax credit for the GST component of the purchase price. 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 Commercial Hire Purchase contract.

The customer may claim depreciation on the motor vehicle (maxinum asset value set by the Australian Taxation Office is $57,180) and the interest component of the rental repayments as long as the vehicle is used to generate taxable income.

GST is not charged on the monthly repayment or balloon payment

Who does a Commercial Hire Purchase suit?

Commercial Hire Purchase is generally suitable for companies using the "accruals" method of accounting for Goods and Services Tax (GST) or for individuals who use their motor vehicle for business related purposes.

Terms and Balloons of a Commercial Hire Purchase

These are the standard terms and balloons.

• 5 year/ 30% balloon
• 4 year/ 40% balloon
• 3 year/ 50% balloon
• 2 year/ 55% balloon

Note: the balloon is an option and in most cases can be varied depending on your circumstances

Want to talk to a Finance Broker?

Just complete the friendly enquiry form and we will have an experienced Commercial Hire Purchase consultant call you within a few hours.