cars, utes

Hansy Mannil Jul 10, 2023

What is a commercial hire purchase and how does it work?

Aimed at customers who will mainly be using their vehicle for business purposes, a commercial hire purchase involves a finance company purchasing a vehicle on your behalf and effectively hiring it back to you for a set, regular fee. Once the final repayment has been made and any final (Residual Value) balance paid off, you will officially own the vehicle.

What are the benefits of a commercial hire purchase?

Benefits include:

  • Flexible loan repayment periods, ranging from two to five years
  • The option to set a final balance (Residual Value) payment of between 0 and 60 per cent of the full loan amount (depending on the type and age of the vehicle) to reduce monthly repayments
  • The option to put down a deposit to reduce the amount borrowed
  • The potential to claim tax deductions if the car is being used for business purposes
  • The potential to claim Input Tax Credits if you are registered for GST
  • Lower interest rates, thanks to the loan being secured against the vehicle

A commercial hire purchase taken out with Stratton Finance also has these additional benefits (subject to lender selection):

  • No ongoing fees
  • Fixed interest rate and monthly repayments for the duration of the loan
  • Repayments can be aligned with your or your business' cash flow
  • Quotes available online

What tax and GST can I expect to pay on a commercial hire purchase?

If the car is being used for business purposes, you may be able to claim a tax deduction on the loan interest charges, as well as on the depreciation value of the vehicle, up to the Depreciation Limit set by the Australian Tax Office.

GST is charged on the purchase price of the vehicle and, if you’re registered for GST on a cash basis, you should be able to claim this as an Input Tax Credit on your next Business Activity Statement.

You will also pay GST on any term charges or fees.

Who should choose a commercial hire purchase?

Both businesses and individuals can apply for a commercial hire purchase, as long as the car is being used predominantly for business purposes.

A commercial hire purchase is a good choice for those who are registered for GST on an accruals or cash accounting basis, as you should be able to claim the GST in the vehicle’s purchase price as an Input Tax Credit on your next Business Activity Statement. You should also be able to claim GST on any interest charged as Input Tax Credits over the lifespan of the loan.

What alternatives are there to a commercial hire purchase?

For individual employees, alternative, cost-effective finance options include a chattel mortgage, a novated lease or a car loan, while businesses may also want to consider a chattel mortgage or a car lease.

To discuss your individual needs in detail and secure the right finance option for you, speak to one of the Stratton Finance team on 1300 787 288.

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