A Chattel Mortgage is simply a loan agreement to borrow funds to purchase equipment. Security for the loan is a mortgage over the equipment financed.
A chattel mortgage can provide you with a substantial tax benefit relating to GST and help maximise your cash flow.
E.g. Purchase a new vehicle $60,000 plus GST $6,000 Total $66,000. $66,000 is financed.
Ownership of the goods remains with you and generally the interest component and the depreciation are tax deductible provided you use the equipment to generate assessable income. Generally, if you are registered for GST, the $6,000 GST paid can then be claimed as an input tax credit on your next BAS lodgement.
However, if you report on a cash basis and choose to finance your equipment via a Hire Purchase or Lease, you may not be able to claim the full GST immediately and be required to claim the GST income tax credit over the life of the loan.
Other features of Chattel Mortgages are:
Flexible repayments options are available
Choice of paying a deposit or not
Choose an option with a balloon payment at the end to further assist cash flow throughout the term of the loan
Fixed interest rates apply, which provides a hedge against possible rate rises.
No GST on instalments.
Fund up to 100% of the equipment (including the GST)
Note: (We do not purport to provide taxation or legal advice and strongly recommend that you consult your financial or taxation advisor for specific advice)
The equipment remains with you when the mortgage is discharged or released.
Possible GST advantages
If GST plays a big part in the equation, a Chattel Mortgage should be considered.