Commercial Hire Purchase
A hire purchase agreement is a contract for the hire of goods where ownership of the subject equipment remains with the Financier and does not pass to the purchaser until either the option to purchase is exercised or alternatively the total agreed finance instalments are paid in full.
Such a facility enables the Borrower to claim the interest and depreciation expenses as a tax deduction, with the subject asset deemed the property of the hirer / purchaser throughout the loan term.
A Commercial Hire Purchase differs to leasing as the customer gains equity in the asset over the term of the agreement.
This type of finance is ideally suited to businesses and individuals which account for GST on an accrual basis, allowing them to claim the GST component of the purchase price as a taxable refund.It is an effective means of vehicle finance for professional, self – employed or business people in cases where the vehicle is primarily intended for business use.
Major Benefits (Summary)
- Depreciation and interest are charged as an expense for accounting and taxation purposes
- Fixed rate & term allow for more accurate budgeting and protect you against interest rate fluctuations.
- Payments can be structured to suit your operation’s cash flow.
- Your business retains its cash reserves for use in unexpected events or to earn income through investment or other business activity.
- You may build up equity in your vehicle or equipment.
- Upon making the final payment at the end of the term, you become the outright owner of the asset.
- Flexibility to meet your desired level of equity, whereby balloon payments help you exercise your preference.
- In most cases a deposit is not required, however should you wish to make one you will benefit from either lower repayments, a shorter term or reduced interest charges.
- On making the final payment you would automatically gain ownership of the asset
- The liability and asset are displayed on the balance sheet
Taxation benefits
Under a Commercial Hire Purchase arrangement the Hirer may be entitled to claim depreciation on business use equipment at the allowable rate set by the Commissioner of Taxation together with any terms charges paid. However you should seek independent taxation advice, as this may not be applicable to your situation.