Chattel Mortgage

A Chattel Mortgage is quickly becoming the car finance option of choice for many sole traders and businesses.

What is a Chattel Mortgage?

Chattel Mortgage finance is an agreement where the finance provider funds the purchase of the vehicle and the customer takes ownership of the motor vehicle at the time of purchase. A Chattel Mortgage is often referred to as a Secured Loan or Bill of Sale. This car financing option allows for an instant tax saving where it enables you to claim the full GST input credit on the purchase price of the vehicle. This credit can be claimed in your next business activity statement.

How does a Chattel Mortgage work?

Under a chattel mortgage the finance provider funds the purchase of the vehicle. The customer takes ownership of the motor vehicle at the time of purchase. The financier then takes a mortgage over the vehicle as security for the car loan. Once the contract is completed, the mortgage is removed giving the customer clear title to the motor vehicle.

Features of a Chattel Mortgage?

• Low establishment fees, low application fees, no monthly fees
• Chattel Mortgage terms range from 12 to 60 months
• No payout penalty options
• A tax deduction is available if used for business use
• The Interest Rate is fixed for the term of the Chattel Mortgage agreement
• Lower interest rates due to the vehicle lease being secured against the vehicle
• Chattel Mortgage repayments are fixed for the term
• No GST is charged on the monthly chattel mortgage payment
• Customers who are registered for GST can claim the GST contained in the vehicle price as an input credit on their next Business Activity Statement (BAS)
• Subject to credit approval, we will finance 100% of the purchase price
• A balloon payment will lower your regular monthly payments. This not only improves your cash flow, but makes your motor vehicle more affordable

Who should consider a Chattel Mortgage?

A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the cash method of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle’s price up-front.

Tax Implications of a Chattel Mortgage

With a Chattel Mortgage, GST is charged in the purchase price of the vehicle but not on the monthly repayment or if included, the balloon payment.

If the customer is registered for GST, under a Chattel Mortgage agreement the customer can claim some/ all of the GST contained in the vehicle price as soon as they lodge their next business activity statement, rather than wait to collect this GST over the term of the Chattel Mortgage loan.

Where the vehicle is used for business use, the hirer can claim “interest and depreciation”. That is interest on the lease payments and depreciation up to the luxury car tax threshold or depreciation limit of $57,466.00

Other financing options

If you are considering a Chattel Mortgage you may also want to consider other business car finance options such as a Car Lease or Commercial Hire Purchase.

Contact a Chattel Mortgage Company “click here”

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