Commercial Hire Purchase (CHP)
A Commercial Hire Purchase (CHP) is generally suitable for organisations using the 'accruals' method of accounting for the Goods and Services Tax (GST) or for individuals who primarily use their motor vehicle for business related purposes. Under the 'accruals' method, the GST component of the acquisition price of the motor vehicle (or other asset) can be claimed back in the entity's next Business Activity Statement, rather than claiming the GST over the term of the finance contract.
You can finance the total purchase price or use a deposit or trade-in to reduce the loan amount and repayments. You can even use the GST refund to make a lump sum repayment at a set point of the contract. This has the effect of reducing the loan amount and interest payable over the term of the loan.
Unlike a Chattel Mortgage, you do not become the owner of the vehicle or equipment until all monies owed under the contract are paid. However, you can still claim a tax deduction for the depreciation on the asset as well as the interest on the loan (to the extent it is used for business purposes.)
The benefits of a Commercial Hire Purchase include:
- The repayments are fixed over the term of the contract
- The term of the loan ranges from 12 to 60 months
- You can structure the finance with or without a balloon payment at the end of the term to suit your cash flow
- There is no GST payable on the balloon payment (if any) at the end of the contract