Commercial Hire Purchase

This type of finance is an agreement between you and the lender to acquire a vehicle. During the hire period, the lender legally owns the vehicle and you pay regular instalments to the lender. When you pay off the loan in full, legal ownership is transferred to you.

The benefits:

  • You can finance 100% of the vehicle purchase price, or place a deposit.
  • You can purchase the vehicle at anytime during the term of the agreement.
  • You are protected from interest rate fluctuations during the loan period.

If you use your car to generate assessable income, the interest component of the instalments and the depreciation on the car may be tax deductible.

Government Legislation - GST Changes to Hire Purchase Agreements from 1 July 2012
The Government has thrown a "curve ball" in relation to changes proposed to the treatment of Hire Purchase Agreements from 1st July 2012. Whilst these changes were originally thought to be positive the proposed legislation has added additional GST consequences for these Agreements.
A customer who accounts for GST on a cash basis from the 1st July 2012 will be treated the same as if the customer accounted for GST on a non-cash (accrual) basis. The effect of this change is that it will allow customers on a cash accounting basis (typically clients with a turnover of less than $2m) to claim the fully amount of any available input tax credits at the time the first payment under the hire purchase is invoiced or paid.

Currently these customers can only claim the GST tax credits progressively in relation to each payment under the hire purchase which has caused a bias away from hire purchase in favour of other asset finance products, in particular chattel mortgage.

The "curve ball" the legislation is that term charges (interest) imposed on the amount financed and all related fees and charges will become fully taxable for GST purposes. This means additional GST will be payable upon settlement of the contract. The effect of this change will mean that a Financier of the Hire Purchase contract will now become liable for all of the GST on the charges and it will pass the liability onto the customer by issuing a tax invoice. The customer can then elect to pay the GST directly to the Financier from their own funds, at settlement, or have the GST liability included in the amount financed under the Hire Purchase contract. (subject to credit approval).

Laurie O'Brien
Managing Director / Finance Broker
Ph: 0419 231 975
Marie O'Brien
Accredited Mortgage Consultant
Ph: 0418 493 288