There are varied options for funding Assets. All generally allow 100% of the purchase price to be funded (secured by the asset itself) with a fixed term with the comparisons as follows:
|FINANCE TYPE||OWNERSHIP||TAX STATUS||DEPOSIT?||RESIDUAL?|
|Chattel Mortgage||Yes||Claim Interest & Depreciation||Yes||Yes|
|Commercial Hire Purchase||Yes - at end||Claim Interest & Depreciation||Yes||Yes|
|Finance Lease||No - option to buy at end||Claim payment as Tax Deduction||No||Yes|
|Operating Lease||No||Claim payment as Tax Deduction||No||No|
You take ownership of the asset. The financier takes their interest over it by way of mortgage. Once the contract is completed, the security interest is removed giving the customer clear title to the vehicle.
Benefit – For businesses registered for GST on a cash basis, they may claim back GST in full in their next Activity Statement. Gives certainty of ownership and ability to contribute a deposit
The financier purchases the asset on behalf of the customer, and then hires it back over the term, and after the residual is paid assumes ownership.
Benefit – Gives some certainty of ownership at end, but generally less tax effective than a Chattel Mortgage option. Not a widespread product option currently.
The financier retains actual ownership of the asset with an option to purchase at the end of the term.
Benefit – A good option if you update equipment or vehicles on a regular basis. The financier retains ownership of the asset, so you only finance the purchase excluding GST. You may also not want ownership for legal or accounting reasons too.
The taxation treatments associated with ownership of equipment can be unique to your personal circumstances. We can support you in getting accounting advice. This can assess whether the benefits associated with asset ownership of equipment, outweigh any benefits of a full deduction of payments through leasing.