What is a Chattel Mortgage?


A Chattel Mortgage is for purchases primarily for business use.
Though the lender provides the funds for the vehicle or equipment that the client requires the client has ownership from day one.

The lender takes out a mortgage as security for the loan and the client pays the lender in monthly or weekly instalments to pay off the value of the asset.

Once the contract is complete the client will own the vehicle outright.

 

Benefits

Chattel Mortgages improve your cash flow, include flexible loan repayments and have the option to reduce the monthly repayments by making a deposit at the start.

If you are buying a vehicle or equipment for business, you may be eligible for a tax deduction and if you are registered for GST you may claim the GST contained in the vehicle price as an Input Tax Credit on your next BAS statement.


Also, depending on the lender, a Chattel Mortgage can include fixed interest rates and fixed monthly repayments for the life of your loan that align with your business’ cash flow.


Chattel Mortgage Vs Lease Financing


You might be trying to decide what type of finance would be best for you.
A common question is knowing the difference between a Chattel Mortgage and a Finance lease.

Both are products typically used for business equipment and vehicles but the difference is the ownership of the asset.
With a Chattel mortgage you own the asset from day one and once a Chattel Mortgage has been paid off the client has a clear title of the asset.

With a finance lease the client is hiring the asset from the financier and at the end of the contracted term the client has the option to purchase the asset for the agreed residual price, refinance the residual price to own or end the lease and return the asset.

Key Features of Chattel Mortgage and Finance Leasing

 

Chattel Mortgage

– The Client owns the asset from Day one.

– GST is included in the purchase price

– Able to make an upfront deposit to reduce the monthly repayments.

– Interest and depreciation may be tax deductible by the client.

– Once the loan is paid, the client owns the asset outright.

– No GST added on to monthly payments

 

– Clients registered for GST can claim GST input Tax credit in the purchase price on their next BAS.

 

Finance Leasing

– The financier owns the asset

– The financier claims the GST input which means the amount financed is lower.

– There is a predetermined residual cost at the end of the term if the client would like to purchase the asset.

– No upfront deposit at the start, so the amount financed cannot be reduced.

– Lease payment may be tax deductible.

– You have the option to purchase the asset at the end of the lease or give it back.

– You can still claim the GST on monthly payments if you are registered for GST.

 

 

 

 

 

 

 

 

Just remember the key difference between the two is the ownership of the asset and the tax implications flowing from that.

It is best to contact us at Yes.com.au and speak to one of our advisers to determine what is the right choice for you.