Commercial Hire Purchase (CHP)
A Commercial Hire Purchase (CHP) is where a customer hires a vehicle from a financier for a fixed monthly repayment over a set period of time.
Alternative names for a Commercial Hire Purchase include Corporate Hire Purchase (CHP), Hire Purchase (HP), Term Purchase (TP) or Offer To Hire.
How does CHP work?
Under a CHP arrangement, the financier agrees to purchase the car on behalf of the customer, and then hires it back to the customer 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 all payments have been made, including balloon if applicable, the customer takes ownership of the asset.
Benefits of a CHP
- Flexible contract terms ranging from 12 to 84 months.
- A balloon payment can be applied to the contract.
- Fixed interest rate.
- Fixed monthly repayments.
- Costs are known in advance.
- A deposit (either cash or trade-in) may be used.
- No GST is charged on the monthly repayments or balloon payment.
Who does a CHP suit?
A Commercial Hire Purchase is suitable for companies, partnerships and sole traders.
Tax implications of a CHP
Where the hirer is registered for GST, they can apply Input Tax Credits to claim some or all of the GST contained in the purchase price of the vehicle/equipment. Under Commercial Hire Purchase, the customer can claim the interest charges on the contract and depreciation according to the ATO guidelines. A tax deduction is available when the vehicle is used for business purposes.