Chattel Mortgage

A Chattel Mortgage is essentially a mortgage over goods to be financed. Title to the goods passes to you on purchase – and the Lender takes a mortgage over them.

The Chattel Mortgage is a flexible finance option, enabling you control over payments and loan structure to finance the full purchase price or include an up-front deposit or trade-in to reduce your repayments.

How does a Chattel Mortgage work?

Under a Chattel Mortgage the Lender advances funds to the customer to purchase an asset, and the customer takes ownership of the equipment (chattel) at the time of purchase.

The Lender then takes a “mortgage” over the vehicle as security for the loan, by registering a Fixed and Floating Charge with ASIC. Once the contract is completed, the charge is removed giving the customer clear title to the vehicle.

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Who does a Chattel Mortgage suit?

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 equipment’s price up-front.

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Tax implications of a Chattel Mortgage

GST is charged in the purchase price of the vehicle but not the monthly rental or the contract balloon (final instalment). Where the customer is registered for GST, they can claim some or all of the GST contained in the vehicle price as soon as they lodge their next BAS, rather than over the term of the loan.

Under a Chattel Mortgage the customer can claim the interest charges on the contract and depreciation up to the Depreciation Limit as a tax deduction.

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Key Features

  • Up to 100% financing (Including GST)
  • Business registered for GST using the Accruals method of Accounting may be able to claim 100% of the Input
  • Tax Credit in the Business Activity Statement (BAS) following purchase
  • Full Ownership of equipment upon final payment
  • Payments may be structured – including irregular or seasonal payments
  • Finance term up to 7 years
  • Payments and Interest fixed for the life of the loan
  • Equity in the equipment increases with each payment
  • Balloon payment at end of term may be structured to lower monthly repayments.

Key Benefits

  • Preserves your working capital
  • The GST refund may be used to increase working capital, reduce the amount of the loan or offset your current GST liability for businesses using the Accruals method of accounting
  • Builds equity in the equipment and your business
  • Fixed payments means cash flow is easy to manage
  • Interest and Depreciation are tax deductible.

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