Commercial Hire Purchase (CHP)

A Commercial Hire Purchase (“CHP”) is a finance arrangement where the financier purchases an asset on the customer’s behalf and hires it back to them for a fixed monthly repayment for a specific term. This arrangement is also known as a Hire Purchase (“HP”) or a Corporate Hire Purchase.

How does a Commercial Hire Purchase work?

Under a Commercial Hire Purchase (CHP), the financier purchases the chosen asset on the customer’s behalf and hires it back to them over a specified period of time. The customer retains full access and use of the asset for the term of the contract, but does not take ownership of the asset until the contract term is completed and any residual (final instalment due) has been paid.

Benefits of a Commercial Hire Purchase

  • Flexible contract terms (from 12 to 60 months)
  • Deposit may be used (via cash or trade-in asset)
  • Repayments are fixed over the term of the contract
  • Fixed interest rate
  • Lower interest rates apply as finance is secured against the asset
  • Structure with/without a residual payment at the end of the term to tailor repayments to suit your cash flow
  • Tax deductible when used for business-related purposes
  • GST registered customers can claim back the GST component of the initial asset price, fees and interest
  • No GST charged on the monthly hire payments or residual, although a component of GST is payable on fees and interest (easily identifiable on your contract)

Is a Commercial Hire Purchase suitable for me?

A Commercial Hire Purchase is generally suitable for organisations (companies, partnerships, trusts and sole traders) using the ‘Cash’ or ‘Accruals’ method of accounting for GST.

Individuals who use the asset mainly for business-related purposes can also use a CHP, although recent changes to GST treatment of a CHP (that came into effect 1 July 2012) mean that a CHP is now significantly less attractive than other forms of business-related finance such as a Finance Lease or Chattel Mortgage.

Tax Implications of a Commercial Hire Purchase

Under a Commercial Hire Purchase, the entire GST component of the asset’s acquisition price can be claimed back on the entity’s next Business Activity Statement (where the entity is GST registered and using the ‘Cash’ or ‘Accruals’ method), rather than claiming the GST over the term of the finance contract. Furthermore, you may choose to pay an upfront deposit (equal to the GST component) to reduce the amount financed and the interest payable over the contract term.

GST is not payable on the Commercial Hire Purchase repayments, although GST is payable on term charges and any fees. These GST components will be shown on your contract and can be claimed throughout the term of the contract.

Where there is business use of the asset, a tax deduction can be claimed for asset depreciation and interest charges on the finance contract. If the asset is a motor vehicle, the depreciation claim would be limited to the Car Depreciation Limit.

Make an Enquiry

To obtain more information about a Commercial Hire Purchase and whether it would be suitable for you, please contact Southgate on 1300 132 500 or enquire online.

Disclaimer: We recommend that prior to entering any finance arrangement that you seek independent financial advice. The information contained herein is of a general nature only and does not take into account your personal circumstances. Southgate Financial Services Pty Ltd, its agents, employees and lenders accept no responsibility for any loss that may arise.