Financing Automobiles, Trains, and Planes

Your GST registration, tax position, and business structure can determine which of the asset finance methods is right for your business.  Your cash flow is also important.  You can hook up with experts for direction on the right direction to take.

Asset Financing in Your Business

You can finance equipment and vehicular purchase in your business via several means. Be that as it may, you need knowledge about the assets you can finance.  You can finance places, buses, and boats, aside from the equipment, trucks, and cars that most businesses finance.  Other items you can finance are office fit outs and dental chairs.

Are you planning to replace, upgrade or buy new equipment or vehicles in your company? The various finance options open to you and their tax consequences will be discussed below.

The most common ones available in this country are:

  1. Chattel Mortgage, in which you can buy any qualified asset via a secured loan agreement
  2. Operating Lease, in which you can lease any qualified asset via a rental agreement

The GST, accounting and tax implications for each of these options is a different one from the other.  Your choice of finance method can affect the following:

  • The particular time at which the asset is registered under your ownership.
  • The type and amount of tax concession available

The finance method you choose depends solely on you, but we are queried on a daily basis by various individuals on which is the right one to adopt. Several complex regulations need to be navigated in the course of asset finance. We, as accountants, help our clients to save money by providing them with advice that is tax effective on the asset they wish to buy.

We will scrutinize the two most popular finance methods below in an attempt to assist the reader when deciding on future financing. You can also send us your quote via any of our affiliates.

  1. Chattel Mortgage

In this type of financing, you can get your assets financed along with GST.  You can, however, reduce the total amount financed by paying a deposit or using trade-ins. Also, it is possible to claim a tax deduction on the asset if it undergoes depreciation; the depreciation cost price limit for a vehicle for 2016/17 is $57,581. The interest paid on the finance is deductible, but the reverse is the case with the monthly repayment.

In this type of asset financing method, you are given fund in advance by the financier to buy the assets. You will become the legal owner of the asset once the financing is provided after the financier has taken a mortgage as security.

The price of the asset and the GST are both financed by the financier; the loan is used for the said financing. The security interest in the said asset will be removed after the final payment is made.

You will not pay GST on the residual payment or monthly repayment of that asset but the purchase price of the asset. If you are a GST registered client, you are eligible to claim back the full front GST tax credit on your next Business Activity Statement; through this cannot be claimed progressively over the loan term.

Operating lease

In this second method of asset financing, the leassor or the financier will buy the particular asset and then will lease it back to the individual. In this case, you will be required to pay a fixed amount on a monthly basis as loan repayment on the asset leased to you.  The financier will remain the owner of the asset.

The GST exclusive price of the said asset is the amount financed under this method, unlike what obtains in the chattel mortgage.  The amount given to the individual is the GST exclusive price of that asset, unlike what obtains in the hire purchase agreement or chattel mortgage. At the end of the lease period, your choices include:

  • Become the owner of the asset after paying the final installment or the Residual Value
  • Continue the lease after refinancing the residual amount
  • Trade in the asset

The residual value is charged at the end of the lease and the GST on the monthly lease rental. It is possible to claim back the GST input tax credit in the following provided you are registered for GST:

  • The residual value
  • The monthly lease rental, which is claimed in the quarterly or monthly Business Activity Statement (BAS) for the lifetime of the lease term.

Summary

Your GST registration, tax position, and business structure can determine which of the asset finance methods is right for your business.  Your cash flow is also important.  You can hook up with experts for direction on the right direction to take.