A Chattel Mortgage is a commercial finance product where the customer takes ownership of the vehicle (chattel) at the time of purchase.
How does a Chattel mortgage work?
Under a Chattel Mortgage the financier advances funds to the customer to purchase a vehicle, and the customer takes ownership of the vehicle (chattel) at the time of purchase.
The financier 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.
Benefits of a Chattel Mortgage
• Flexible contract terms ranging from 24 to 60 months (two to five years)
• A residual value (balloon) can be applied to the contract enabling the monthly repayments to be tailored to a budget
• Fixed interest rates
• Monthly repayments are fixed
• Costs are known in advance
• Deposit (either cash or trade-in) may be used
• A tax deduction is available when the vehicle is used for business purposes
• A customer who is registered for GST can claim the GST contained in the vehicle price as an input credit on their next Business Activity Statement (BAS)
• No GST is charged on the monthly repayment or the contract balloon amount
• The finance is secured against the vehicle, allowing lower interest rates
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 vehicle’s price up-front.
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.