A chattel mortgage is a unique financing facility which allows for instant GST benefits to a purchaser who accounts for GST on a cash basis.
It occurs where a finance lender provides a loan or finance facility to a taxpayer and the taxpayer uses that facility to purchase an asset such as a business equipment. Unlike hire purchase agreements, under a chattel mortgage a taxpayer becomes the owner of the business equipment at the time that the agreement is entered into. Security for this form of business equipment finance is a mortgage over the equipment purchased.
How Does A Chattel Mortgage Work?
Under a chattel mortgage the finance provider funds the purchase of the equipment by taking a mortgage over the equipment as security for the equipment finance with the customer takes ownership of the equipment at the time of purchase.
Once the contract is completed, the mortgage is removed giving the customer clear title to the business equipment.
Features Of A Chattel Mortgage:
- Chattel mortgage terms range from 1 to 5 years
- Low establishment fees and monthly fees
- No GST is charged on the monthly chattel mortgage payment
- The Interest Rate is fixed for the term of the chattel mortgage agreement
- A tax deduction is available if used for business use
- Chattel mortgage repayments are fixed for the term
- Customers registered for GST can claim the GST that is included in the vehicle purchase price
Who Does A Chattel Mortgage Suit?
A chattel mortgage suits someone who is going to use the purchased equipment predominately for business use, therefore this equipment financing product is used by:
- Sole traders
- Partnerships and
- ABN holders.
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