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Finance Products

Chattel Mortgage

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?

A Chattel Mortgage involves three main parties:

• A financier provides the funding necessary for a customer to acquire a vehicle.
• The customer using the funding provided by the financier takes immediate ownership of the vehicle when it is acquired
• The financier registers a Fixed and Floating Charge with the Australian Securities and Investment Commission (ASIC) in which a mortgage is issued with the vehicle used as security for the loan

On completion of the contract, the Fixed and Floating charge is deregistered giving the customer clear title of the vehicle.

Benefits of a Chattel Mortgage

A Chattel Mortgage has numerous benefits including:

• Contract terms that are flexible in length, range from 12 to 60 months
• Fixed interest rate and monthly repayments
• Ability to use a deposit such as cash or vehicle trade in at time of purchase
• The finance (loan) is secured against the vehicle itself
• The use of a residual (balloon) value that can assist in tailoring repayments to a budget

There may also be taxation benefits to applicable customers:

• GST is not charged on the monthly repayment or the contract residual (balloon) amount
• When the vehicle is used for business purposes a tax deduction may be available
• Customers registered for GST may claim the GST in the vehicle price as an input credit on their next Business Activity Statement (BAS)

Who does a Chattel Mortgage suit?

A Chattel Mortgage is best suited to sole traders, partnerships and companies that use the cash method of accounting (business transactions are recorded when they occur). This permits them to claim the GST portion of the vehicle price up front.

Those entities using the accrual accounting method may be better suited towards a Commercial Hire Purchase (CHP)

Tax implications of a Chattel Mortgage

• GST is charged on the vehicle's purchase price
• This GST may be claimed (in part or in full) by customers registered for GST as soon as their next Business Activity Statement (BAS) is due, rather than over the term of the loan
• GST however is not charged on the monthly rental or contract residual (balloon)
• Interest charges on the loan and depreciation up to the ATO's depreciation limit may be claimed as a tax deduction

Want more information? Simply click here to book a call, phone us on 1300 885 074 or email info@aspirebenefits.com.au.