Your Guide to Chattel Mortgage and GST
Understanding chattel mortgage and GST on car loan interest
If you’re in the process of exploring car finance and are buying a car for business purposes, a chattel mortgage could be a great option for you. You'll be eligible for a chattel mortgage if you plan to use the car for business purposes 50 per cent of the time or more.
There are some great benefits of chattel mortgages for business owners who can enjoy good car finance deals alongside potential reductions in tax and GST outlay.
What is a chattel mortgage?
Firstly it’s important to understand exactly what a chattel mortgage is. It’s a type of car finance where the lender will give you the funds to purchase a vehicle while you take ownership of the vehicle at the time of purchase. In simple words its just a business car loan.
Chattel is defined as any movable piece of personal property..
The lender will then take a ‘mortgage’ over the vehicle, which is used as security for the loan. The car you are buying is seen as the ‘chattel’ in this finance option.
When you have paid back your loan in full, the security interest (the vehicle) is cleared and you’ll have a clear title to the vehicle.
What is GST?
Most people in Australia have heard of GST, and if you’re a business owner, you’ll be aware of it in your daily work and in your tax returns.
GST stands for Goods and Services Tax – it's a broad based tax that is applied as a 10% blanket rule to goods, services and other items sold and consumed within Australia.
Does a chattel mortgage have tax benefits?
Yes. Since you will be using the vehicle for business purposes, you should be able to enjoy a tax deduction* when you choose to get a chattel mortgage.
Generally, you should be able to claim interest charges* on your chattel mortgage as deductions on your Business Activity Statement*. This could see you getting a significant amount of money back.
What does a chattel mortgage mean for GST on car loan interest?
Many business owners choose a chattel mortgage due to the benefits it has for GST for their business.
If you are registered for GST, you may be able to claim the GST that is contained in the vehicle’s purchase price as input credit on your next Business Activity Statement*.
It’s also worth noting that no GST can be charged on the monthly repayments or the contract balloon amount. Always remember to speak to your accountant about the best way to make this work for you.
How do you get a chattel mortgage?
We can help you to get a chattel mortgage. If you've decided that this is the right car finance option for you, we’ll help you through the process of getting a chattel mortgage.
Make sure that you have all the necessary documents to ensure the application process goes smoothly and we’ll direct you to our wide range of lenders who can offer the best rates for chattel mortgages.
We understand that as a business owner, you’re often incredibly busy. So we want to make the process as smooth and efficient as possible.
What are the advantages of a chattel mortgage?
As well as the possible tax deductions and GST advantages of a chattel mortgage, there are other reasons why business owners choose this type of car loan.
Other advantages include:
- Flexible repayments – loan terms for chattel mortgages can be between 2 and 7 years.
- Options to reduce monthly repayments by setting a final balance of up to 50%.
What are the disadvantages of a chattel mortgage?
You can only apply for a chattel mortgage is you intend to use your vehicle for business 50 per cent of the time or more. This means that this type of car loan is not available to everyone.
Some business owners do not want to take ownership of a car (as you do with a chattel mortgage) and prefer to be able to return the car or upgrade it at the end of the lease period.
When should you get a chattel mortgage?
If you have an accountant, they will be able to advise you on whether a chattel mortgage could be the right car finance option for you. We are always happy to help and we can give you expert advice – taking advantage of our decades of experience helping people to get the right car loans for them.
Generally, chattel mortgages suit businesses or individuals using their cars for business purposes. They are an excellent choice for those registered for GST on a cash accounting basis.
If you are a business owner and you want a low cost and flexible car finance option, speak to us about chattel mortgages today.
* Disclaimer: Please consult your accountant for eligibility on tax benefits, claiming GST on BAS and 100% finance.
Positive Lending Solutions or the Positive Group is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.
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