Commercial Hire Purchase
Commercial Hire Purchase
Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase an asset (car, equipment, truck etc.) 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 asset for the term of the contract but is not the owner of the asset.
At the end of the contract term when the total price of the asset (plus any balloon payment) and the interest charges have been paid in full, the customer takes ownership of the asset.
- Flexible contract terms ranging from 24 to 60 months (two to five years)
- Residual value (balloon or final instalment) may be placed on contract
- Fixed interest rate
- Monthly repayments are fixed
- Costs are known in advance
- Deposit (either cash or trade-in) may be used
- A tax deduction is available when the asset is used for business purposes
- GST is not charged on the monthly rental or residual payment
- Customers registered for GST can claim the GST in the asset price
- The finance is secured against the asset, allowing lower interest rates
Where the hirer is registered for GST, they can apply Input Tax Credits to claim some or all of the GST contained in the purchase price of the asset.
Businesses using Accrual accounting can claim the GST as a lump sum on their next Business Activity Statement (BAS), whereas those using Cash accounting can claim the GST in installments over the term of the contract.
GST is not charged on the monthly repayment or on the balloon (final installment) amount.
Where the asset is used for business purposes, the hirer can claim depreciation (in the case of vehicles up to the depreciation limit*) and interest charges on the contract as a tax deduction.