Chattel Mortgage

How does a Chattel Mortgage work?

A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the cash method of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle’s price up-front.

Benefits of a Chattel Mortgage

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • A residual value (balloon) can be applied to the contract enabling the monthly repayments to be tailored to a budget
  • Fixed interest rates
  • 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
  • A customer who is registered for GST can claim the GST contained in the vehicle price as an input credit on their next Business Activity Statement (BAS)
  • No GST is charged on the monthly repayment or the contract balloon amount
  • The finance is secured against the vehicle, allowing lower interest rates

Tax implications of a Chattel Mortgage

GST is charged in the purchase price of the vehicle but not the monthly rental or the contract balloon (final instalment).

Where the customer is registered for GST, they can claim some or all of the GST contained in the vehicle price as soon as they lodge their next BAS, rather than over the term of the loan.

Under a Chattel Mortgage the customer can claim the interest charges on the contract and depreciation up to the Depreciation Limit as a tax deduction.

Who does a Chattel Mortgage suit?

A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the cash method of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle’s price up-front.