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Commercial Hire Purchase (CHP)
An Commercial Hire Purchase is a finance product where the customer hires their business equipment from the financier for a fixed monthly repayment over a set period of time.
How does Commercial Hire Purchase work?
Under a Commercial Hire Purchase arrangement the financier agrees to purchase the equipment on behalf of the customer, and then hire it back to them over a set period of time.
The customer has the use of the business equipment for the term of the contract but does not own it.
At the end of the contract term when the total price of the equipment (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the equipment.
Benefits of Commercial Hire Purchase
- Flexible contract terms
- Fixed interest rates
- Fixed monthly lease rentals
- Costs are known in advance
- Deposit (either cash or trade-in) may be used
- A residual can be applied to contract, lowering monthly payments
- Tax deductions can be claimed for depreciation of the equipment
- Customers registered for GST can claim the GST in the equipment's price
- Ability to structure your repayments to suit cash-flow trends
Tax implications of Commercial Hire Purchase
Where the hirer is registered for GST, they can apply Input Tax Credits to claim back the GST contained in the purchase price of the equipment.
Businsses using Accrual accounting can claim the GST as a lump sum on their next Business Activity Statement (BAS), whereas those using Cash accounting can claim the GST in installments over the term of the contract.
The customer can claim depreciation of their equipment as a tax deduction.
Other options
If you are considering an Commercial Hire Purchase, you may also want to take a look at Asset Lease,
Chattel Mortgage and Equipment Rental as other possible finance options.
Want to know more?
Call us on (03) 9888 9292 and we will be happy to discuss your options with you.
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