Hire Purchase is a great option for businesses to purchase a car through a purchase agreement and financed 100% with a fixed or flexible term.
Up- front costs usually include a deposit, stamp duty, reg fees and the first loan repayment. Some of these can be added to the amount financed. You can have a balloon payment which makes no difference to your overall tax claim but is designed more so to reduce your monthly repayments.
With this option at the end of the term you can make a final offer to pay out the final balloon and own the car or alternatively many may look at this time to upgrade their car by trading in for a later model.
You can structure your payments based on your own budget whether you budget on weekly, fortnightly or monthly repayments.
How Does a Commercial Hire Purchase work?
A Commercial Hire Purchase (CHP) agreement has the financier (lender) agree to purchase the car on behalf of the customer and then hire it back to the customer for an agreed length of time. The customer will then have the use of the asset but doesn’t own it. The customer can at the end of the term and providing the residual has been paid out the customer can take possession of the asset.
Benefits of a Commercial Hire Purchase (CHP)
Important Note: The GST treatment of Commercial Hire Purchase has changed as of 1 July 2012- and as a result of a change announced in the 2010 Federal Budget. This change was the most significant treatment of the tax structure and treatment of Commercial Hire Purchase (CHP).
To see more detail regarding the ATO definition and rules around GST for Hire Purchase you can see at this link.
ATO RULES ON COMMERCIAL HIRE PURCHASE (CHP)