How does a Chattel Mortgage work?
Under a Chattel Mortgage, a financier advances funds to a customer in order to purchase an asset. The customer takes ownership of the asset at the time of purchase and an invoice is made out to customer. The financier then takes a mortgage over the asset as security for the loan by registering a Fixed Charge with ASIC. Once the contract is completed, the charge is removed to give the customer clear title to the asset.
Benefits of a Chattel Mortgage
- Flexible contract terms ranging from 12 to 84 months.
- A balloon can be applied to the contract.
- Fixed interest rates.
- 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 Chattel Mortgage suit?
A Chattel Mortgage is suitable for companies, partnerships and sole traders who have a valid ABN for tax purposes.
Tax implications of a Chattel Mortgage
GST is charged in the purchase price of the vehicle, but not the monthly rental or balloon (final payment). 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 a Chattel Mortgage, the customer can claim the interest charges on the contract and depreciation according to the ATO guidelines.