A Commercial Hire Purchase (CHP) is a commercial finance product where the customer hires the vehicle from the financier for a fixed monthly repayment over a set period of time. Commercial Hire Purchase can also be known as a Corporate Hire Purchase, Hire Purchase or Offer To Hire, and is often abbreviated as CHP or HP.
Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase the car on behalf of the customer, and then hire it back to them over a set period of time. The customer has the use of the vehicle for the term of the contract but is not the owner of the vehicle. At the end of the contract term when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.
• Flexible contract terms ranging from 24 to 60 months (two to five years)
• Residual value (balloon or final instalment) may be placed on contract
• Fixed interest rate
• 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 vehicle is used for business purposes
• GST is not charged on the monthly rental or residual payment
• Customers registered for GST can claim the GST in the vehicle price
• The finance is secured against the vehicle, allowing lower interest rates
A Commercial Hire Purchase (CHP) is suitable for companies, partnerships and sole traders who account for GST on an Accruals basis, and individuals using the vehicle for business purposes.
The Australian Tax Office and Treasury have recently introduced legislation to
enable qualifying cash basis taxpayers to claim input tax credits up front for
commercial hire purchase (CHP) contracts. Previously these taxpayers could
only claim the GST on a monthly basis over the finance term. This legislation has now received royal assent and is effective from 1 s t July 2012. In addition to the above reform, the legislation will also treat CHP agreements as a fully taxable supply from 1 s t July 2012. This reform has significant consequences in terms of how CHP contracts will be quoted and documented.
From 1 s t July 2012, GST will be levied upfront on the term/interest charges and all fees (whether financed or not) for a CHP agreement - in addition to the GST applicable for the sale of the goods. Therefore the net amount financed under CHP agreements from 1 s t July 2012 will increase.We suggest you contact your accountant to discuss the suitability of this product for your needs.
The above is generally accepted guidelines from the ATO. We always recommend that you seek advice from your accountant in relation to the tax implications for your own situation.
If you have any other questions please phone us on 03 9832 0802 or complete the form below.