Chattel Mortgage
A chattel mortgage is a unique car financing facility which allows for instant GST benefits to a purchaser who accounts for GST on a cash basis.
What is a chattel mortgage?
A chattel mortgage occurs where a Loans lender provides a loan or Loans facility to a taxpayer and the taxpayer uses that facility to purchase a asset such as a motor vehicle. Unlike hire purchase agreements, under a chattel mortgage a taxpayer becomes the owner of the motor vehicle at the time that the agreement is entered into. Security for this form of car Loans is a mortgage over the vehicle purchased.
How does a chattel mortgage work?
Under a chattel mortgage the Loans provider funds the purchase of the vehicle. The customer takes ownership of the motor vehicle at the time of purchase. The Loans provider then takes a mortgage over the vehicle as security for the car Loans. Once the contract is completed, the mortgage is removed giving the customer clear title to the motor vehicle.
Chattel mortgage features
- Low establishment fees and monthly fees, no payout penalties
- Chattel mortgage terms range from 1 to 5 years
- A tax deduction is available if used for business use
- Chattel mortgage repayments are fixed for the term
- The Interest Rate is fixed for the term of the chattel mortgage agreement
- No GST is charged on the monthly chattel mortgage payment
- Customers registered for GST can claim the GST that is included in the vehicle purchase price
Who does a chattel mortgage suit?
A chattel mortgage suits someone who is going to use a motor vehicle predominately for business use, therefore this car financing product is used by companies, trusts, sole traders, partnerships and ABN holders.
Chattel mortgage taxation implications
A cash basis taxpayer for GST purposes is entitled to claim all of the GST input tax credit up to the luxury car tax threshold or depreciation limit of $57,180 in relation to an acquisition using the chattel mortgage product at the commencement of the arrangement. The monthly repayment or balloon amount is not subject to GST. Cash basis taxpayers still retain their rights to claim depreciation and interest on the motor vehicle acquired under a chattel mortgage facility.