Self employed,and need a business vehicle? Well it’s now a ideal time to purchase that upgraded utility or van,with a chattel mortgage loan.What is chattel mortgage you ask?
If you are not in the position to pay cash for a vehicle,then a chattel mortgage is a great way to gain a tax benefit and a low bank interest rate. Now let’s see what a chattel mortgage is.
What is Chattel Mortgage?
A secured lending agreement called a chattel mortgage is designed solely for commercial vehicles. You are eligible for a chattel mortgage regardless of whether you have an ABN, a company, or are a sole proprietor, provided that the car is used in a legitimate business capacity (eg.ATO states in excess of 51 percent business use).
A chattel mortgage is available to tradespeople who need a utility for their tools and equipment.
The ownership of the car passes to the borrower at the moment of purchase, according to the provisions of a chattel mortgage.
A lien placed on the car by the lending institution serves as collateral for the loan until all payments have been made in full.
A chattel mortgage has a lower interest rate than an unsecured personal loan since the car is used as loan collateral. There are various enticing tax benefits as well as the excellent interest rate, which we will examine.
Tax Benefits of a Chattel Mortgage
Financing a car,van,utility or truck through a chattel mortgage offers numerous benefits. These tax deductions include:
GST on the Initial Purchase
GST or Goods and Services Tax, is a statutory federal tax that is payable on all goods and services. These include all facets of life excluding fresh food,medical costs,owner/occupier housing.
A GST imput tax credit on a commercial vehicle purchased,is claimable in the next Business Activity Reporting quarter,following the purchase date.To be eligible for a imput tax credit,you are required to have a Australian Business Number(ABN) and registered for GST.
Tax benefit for interest payments
Tax deductions on your chattel mortgage are available. Subject to eligiblility, you can claim the interest charges on your next annual tax return.
Tax benefit for depreciation
You may even be ready to claim the depreciation of the vehicle value as a tax write-off . Consult a tax professional to seek out out about the present depreciation limit and therefore the requirements of the Australian Tax Office (ATO).
Always consult a tax professional to receive advice on which tax deductions you’re and aren’t eligible for.
Further Benefits for Business Owners
Chattel Mortgage’s have overtaken hire purchase and leasing, as the recommended finance option for small business owners and self employed, as it provides good flexibility around repayment. Subject to lending criteria, 100% of the loan may be financed – meaning no upfront deposit needs to be put down.
Other benefits of a Chattel Mortgage include:
Lower interest rate
Compared to unsecured loans, the rate of interest for a mortgage will typically be lower thanks to the asset being secured by the lender.
Flexible payment structure
You can set up a balloon/lump sum payment at the end of the term to lower your monthly repayments. A higher balloon payment will increase the amount of interest paid over the loan term.
Aids business cash flow
A chattel mortgage agreement allows you to tailor the finance to suit your cash flow. Firstly, you need to ask, what monthy payment suits me, then you have some decisions to make in structuring your chattel mortgage – as follows:
- Term Of Loan. The loan term will be dependant on how many kilometres you’ll travel every year, how quickly the vehicle will depreciate, and what the forecasted end-of-term value is. Terms can range from one to five years.
- Balloon Payment. A percentage of the cost price of car,normally 30%,which is tacked onto the end of the loan. Due to this balloon payment,the monthly repayments will reduce to suit your budget, but you’ve got to weigh that up against the value of the vehicle on disposal. Be careful deciding on the balloon amount,as you don’t want to be out of equity at the end of loan. Meaning the balloon amount is higher the the car’s value.
- Deposit. A deposit is optional, however a lender may request a 20% equity due to certain client profiles.If you can put your deposit amount to better use.A no-deposit option is always preferable.
Is a chattel mortgage right for your business?
A chattel mortgage is the ideal choice for a sole trader,partnership or company. Always seek professional accountancy advice,prior to committing yourself.Flexible loan options and tax deductions are available on a chattel mortgage.
Even individuals such as sales reps,are eligible for a chattel mortgage, as long as the car is being used predominantly (more than 51%) for business purposes. If you are registered for GST on a cash accounting basis, you will be able to claim the GST ,as an Input Tax Credit on your next Business Activity Statement.
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