Posted by cagoraman on 2nd September, 2012 ?
Healthy cash flow is vital to any business. Right alongside purchase of key assets to retain productiveness and competitive edge. Historically commercial hire purchase finance has offered commercial borrowers the very best of both worlds. Instant use of crucial business vehicles and equipment minus significant up-front capital outlay. As of 1 July 2012 though, all this has changed.
Companies, partnerships, sole traders, even automobile allowance-eligible staff. Each business borrower incurs additional GST liabilities under the revised commercial hire purchase tax treatment. While such GST costs can later be claimed back in the most part, the impact on commercial cash flow is great. So it is vital that all businesses wanting commercial business financing get up to speed with these commercial hire purchase changes. While doing so nevertheless , it is important to notice that all isn't lost. Amid such big change to commercial hire purchase finance, one thing remains constant ? chattel mortgages. This unchanged commercial finance tool shines a beacon of cost benefits and potency for embattled business borrowers.
Commercial hire purchase: what has changed?
Traditionally commercial hire purchase agreements needed payment of GST only on:
- Price of the asset; or
- Upfront value of the asset
From 1 July 2012, GST is also charged on:
- All interest; and
- Any costs
Borrowers must settle these GST charges on settlement. Either by initial charge or addition to the CHP loan. Now definitely GST registered borrowers can progressively claim these outgoings back over the loan lifetime. Input Tax Credit provides the transport for such claims. Yet meanwhile, borrowers experience a cash flow shortfall and reduced cost potency. Actually reason enough to consider alternative finance solutions that preserve money flow and lower liabilities.
One such finance solution is the Chattel Mortgage. Here a borrower takes immediate ownership of the financed asset on purchase. In the meantime, the bank holds the chattel as security. Now from a GST viewpoint, chattel mortgages offer borrowers similar conditions to normal commercial hire purchase. Before modified tax treatment bumped up cash outlay. Under a chattel mortgage, GST is owing on the asset purchase price only. That means charges, interest, mortgage repayments and remaining worth are all GST free. And borrowers can claim back their GST outgoings upon lodgement of their next BAS statements. Simple.
CHP vs chattel mortgage: enlist expert help in making your decision
Tax can be overwhelming enough. Yet when new tax rules apply to a previously favoured commercial lending tool, it is sufficient to send any borrower into a spin. Be sure new commercial hire purchase tax treatment doesn't get the best of you. Get specialist support in understanding the revised GST implications and other options like chattel mortgages. Veteran finance broker Natloans places gurus available to steer you through all this and more. So that you can still obtain necessary assets without being drained of vital business money flow.
Mary Nebotakis ? has a B.Economics Dip.Financial Services Cert IV Workplace Learning Assessment. On her website she has got many interesting videos and articles on commercial hire purchases. You will also find more information on chattel mortgages.
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About cagoraman
Founder and Community partner of Cagora. A social Network with many Specialities and Communities. http://friesland.cagora.com/launchearn
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