Commercial Hire Purchase - example of the type of equipment that can be financed
A Commercial Hire Purchase (CHP) agreement is a contract for the hire of goods where ownership of the equipment financed remains with the financier. Ownership does not pass to the purchaser until either the option to purchase is exercised or alternatively the total agreed finance instalments are paid in full.
Such a facility enables the Borrower to claim the interest and depreciation as a tax deduction.
A CHP differs to leasing as the customer gains equity in the asset over the term of the agreement.
The asset is deemed the property of the hirer/purchaser throughout the loan term.
This type of finance is ideally suited to businesses and individuals which account for GST on an accrual basis.
In this case a CHP allows them to claim the GST component of the purchase price as an input tax credit (ITC).
It is an effective means of vehicle finance for professionals, self employed or business people when the vehicle is primarily intended for business use.
1. Under a Commercial Hire Purchase arrangement the Hirer may claim the depreciation and interest on business use equipment.
2. The GST component of the asset can be claimed as an input tax credit in the quarter the finance settles in (thresholds apply for vehicles under Luxury Car Tax)
Please note that you should seek independent taxation advice, as this may not be applicable to your situation.
Key Features & Benefits:
- Fixed rate & term allow for more accurate budgeting and protect you against interest rate fluctuations.
- Payments can be structured to suit your operation’s cash flow.
- Your business retains its cash reserves for use in unexpected events or to earn income through additional investment.
- You are building equity in your vehicle or equipment.
- Balloon payments can be utilised to decrease monthly repayments.
- In most cases a deposit is not required, however should you wish to make one you will benefit from either lower repayments, a shorter term or reduced interest charges.
- On making the final payment (at the end of term) you automatically gain ownership of the asset.
- The liability and asset are displayed on the balance sheet
- Depreciation and interest are charged as an expense for accounting and taxation purposes