Commercial Hire Purchase
Important Note: The GST treatment CHPs has changed as of 1 July 2012 - for more information about this important change please click here to read more.
An Commercial Hire Purchase is a finance product where the customer hires their business equipment from the financier for a fixed monthly repayment over a set period of time.
Under a Commercial Hire Purchase arrangement the financier agrees to purchase the equipment on behalf of the customer, and then hire it back to them over a set period of time.
The customer has the use of the business equipment for the term of the contract but does not own it.
At the end of the contract term when the total price of the equipment (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the equipment.
Benefits of a Commercial Hire Purchase
- Flexible contract terms
- Fixed interest rates
- Fixed monthly lease rentals
- Costs are known in advance
- Deposit (either cash or trade-in) may be used
- A residual can be applied to contract, lowering monthly payments
- Tax deductions can be claimed for depreciation of the equipment
- Customers registered for GST can claim the GST in the equipment's price
- Ability to structure your repayments to suit cash-flow trends
Tax implications of a Commercial Hire Purchase
Under a Commercial Hire Purchase agreement GST is payable on the purchase price of the equipment and also on all term charges (interest) and any fees. These GST charges are payable upon settlement of the contract.
Businesses using the Cash accounting method as well as those using the Accruals method of accounting can claim the GST paid on the purchase price of the equipment up-front when they lodge their next BAS. Additionally, the GST charged on the term charges and any fees can be claimed back as Input Tax Credit.
Where the vehicle is used for business purposes, the hirer can claim depreciation up to the Depreciation Limit and interest charges on the contract as a tax deduction.