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What is a Chattel Mortgage?

A Chattel Mortgage occurs where a finance lender provides a loan or finance facility to a taxpayer, and the taxpayer uses that facility to purchase an asset such as a vehicle.  Unlike Hire Purchase agreements, under a Chattel Mortgage a taxpayer becomes the owner of the vehicle at the time that the agreement is entered into.  Security for this form of vehicle finance is a mortgage over the vehicle purchased.

How does a Chattel Mortgage work?

Under a Chattel Mortgage the finance provider funds the purchase of the vehicle.  The customer takes ownership of the vehicle at the time of purchase.

The finance provider then takes a mortgage over the vehicle as security for the vehicle finance.

Once the contract is completed, the mortgage is removed giving the customer clear title to the vehicle.

Chattel Mortgage Features

    1. Low establishment fees and monthly fees, no payout penalties
    2. Chattel Mortgage terms range from 1 to 5 years
    3. A tax deduction is available if used for business use
    4. Chattel Mortgage repayments are fixed for the term
    5. The interest rate is fixed for the term of the agreement
    6. No GST is charged on the monthly Chattel Mortgage repayment
    7. 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 vehicle predominately for business use; therefore this vehicle finance product is used by Companies, Trusts, Sole Traders, Partnerships and ABN Holders.

Possible 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 (currently $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 vehicle acquired under a Chattel Mortgage facility.

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* Information contained within this article is correct at time of writing and is general information only. This should not be taken as financial advice.

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