Commercial Hire Purchase

Commercial Hire Purchase (or Asset Purchase) are contracts based on the same principles as a lease – but they are treated differently for tax purposes. The Lender gives you possession and use of an item of equipment, in return for regular payments. These agreements can be extremely flexible managing your repayments and loan structure to suit your business and cashflow needs.

How does an Commercial Hire Purchase work?

Under a Commercial Hire Purchase arrangement the Lender agrees to purchase the equipment on behalf of the customer, and then hire it back to them over a set period of time. The customer has the use of the asset for the term of the contract but is not the owner of the vehicle.

At the end of the contract term when the total price of the equipment (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the asset.

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Who does a Commercial Hire Purchase suit?

A Commercial Hire Purchase may be suitable for business (including companies, partnerships and sole traders) who account for GST on either an Accruals or Cash basis.

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Tax implications of a Commercial Hire Purchase

Under a Commercial Hire Purchase agreement, GST is payable on the purchase price of the equipment and also on all term charges and any fees. These GST charges are payable upon settlement of the contract, and can either be added to the loan or paid up-front.

Businesses using either the Cash or Accruals accounting method (and registered for GST) can claim the GST paid on the purchase price of the equipment up-front when they lodge their next BAS. Additionally, the GST charged on the interest (term charges) and any fees can be claimed back as Input Tax Credit progressively over the life of the loan. You are also able to claim depreciation up to the Depreciation Limit and interest charges on the contract 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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