Chattel or Asset Loan
Under a Chattel Mortgage, tax deductions may be available where the copier is used for income producing purposes.
Generally, available tax deductions under a Chattel Mortgage include interest charges on the loan and depreciation on the copier up to the Depreciation Limit. GST contained in the purchase price of the copier as an Input Tax Credit on their next BAS.
How does a Chattel Mortgage work?
Under a Chattel Mortgage the financier advances funds to the customer to purchase a copier, and the customer takes ownership of the copier (chattel) at the time of purchase.
The financier then takes a “mortgage” over the copier as security for the loan, by registering their interest over it with the PPSR.
Once the contract is completed, the security interest is removed giving the customer clear title to the copier.
Benefits of a Chattel Mortgage
• Flexible contract terms ranging from 12 to 60 months (one 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 copier is used for business purposes
• A customer who is registered for GST can claim the GST contained in the copier 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 copier, 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 copier’s price up-front.
Tax implications of a Chattel Mortgage
GST is charged in the purchase price of the copier 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 copier 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.