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Maximising Your Tax Return Claims With a Chattel Mortgage

Filed under Information Centre

Need a car for your business? With ATO’s $150,000 threshold for instant asset write-off put in place until the end of the year, now is the perfect time to buy a commercial vehicle.

If you don’t have enough money for the purchase, using a chattel mortgage is a great way to take advantage of business tax concessions and competitive interest rates. Learn more about the chattel mortgage tax deductions you can claim here. But first, let's understand what a chattel mortgage is.

What is a Chattel Mortgage?

A chattel mortgage is a secured car loan that is intended exclusively for commercial motor vehicles. Regardless if you are a business owner or an independent entrepreneur, you are eligible for this type of car financing as long as the car you are buying is being used predominantly for business purposes or at least 50% of its lifetime.

If you're a tradie and in need of a ute for transporting your equipment and tools, for instance, you can qualify for a chattel mortgage.

Under the terms of a chattel mortgage, you own the vehicle from the time of its purchase. However, the lender puts a lien over the car until the loan is paid in full.

Because the car is used as security for the loan, a chattel mortgage typically has a lower interest rate than an unsecured consumer car loan. Aside from lower interest charge, it also comes with several other benefits, mostly in the form of tax deductions. w2w

Tax Benefits of a Chattel Mortgage

Financing a commercial vehicle through a chattel mortgage offers a lot of benefits. These are chattel mortgage tax deductions which includes:

GST on the Initial Purchase

Goods and Services Tax or GST is a tax that is incurred on your purchased goods or services. These include car, food, clothes, and items of daily needs.

You can claim the GST credit on a commercial vehicle and any other purchased goods and services that you intend to use your purchase solely or partly for business use and the purchase does not relate to making input taxed supplies.

The GST paid on the initial purchase of your car can be claimed as an Input Tax Credit. This is possible as long as your business is registered to collect Federal Government GST through your Business Activity Statement (BAS).

Tax deductions for interest payments

You may be able to claim the interest payments on your chattel mortgage as a tax deduction. If you are eligible, you can claim the interest charges on your next annual tax return.

Tax deductions for depreciation

You may also be able to claim the depreciation of the vehicle value as a tax deduction. Consult a tax professional to find out about the current depreciation limit and the requirements of the Australian Tax Office (ATO).

Always consult a tax professional to receive advice on which tax deductions you are and are not eligible for.

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Other Benefits for Business Owners

A Chattel Mortgage is a popular finance option for self-employed or small business owners, as it provides good flexibility around repayment. In some cases, 100% of the loan may be financed – meaning no upfront deposit needs to be put down.

Other benefits of a Chattel Mortgage include:

Lower interest rate

Compared to unsecured loans, the interest rate for a Chattel Mortgage will typically be lower due to the asset being secured by the lender.

Flexible payment structure

You can choose to set up a balloon/lump sum payment at the end of the term to lower your monthly repayments. However, a large balloon payment will increase the amount of interest paid over the loan term

Aids business cash flow

A chattel mortgage allows you to tailor the finance to suit your cash flow. First, you need to determine what size of payments you’re comfortable with, then you have some decisions to make in structuring your chattel mortgage – as follows:

  • Length of Term. Deciding on the ‘right’ length of the term depends on how many kilometres you’ll travel every year, how quickly the vehicle will depreciate, and what the forecasted end-of-term value is. Terms can be one year, five years, or anywhere in between.
  • Balloon Payment. A higher end-of-term balloon means your monthly repayments are going to be lower, but you’ve got to weigh that up against the value of the vehicle on disposal. If the balloon is going to be greater than the resale value, you might want to reconsider.
  • Deposit. The decision here isn’t just how much your deposit should be, it’s also whether you even use one at all. Although a deposit reduces the size of the loan, it also ties up capital you could be putting to better use. It’s a fine balance getting it all right. You’ve got to know what you’re doing, and you’ve got to have accurate information. Or, you can just call us instead. We know it inside out.

Is a chattel mortgage right for your business?

There is a range of business car loans that you can choose from. The one that best suits your needs will depend on your circumstances and preferences.

There are many benefits of getting a chattel mortgage, including flexible loan options and potential chattel mortgage tax deductions. If you are considering a chattel mortgage to make savings on your tax return, make sure you seek advice from a tax professional.

Both businesses and individuals are eligible for a chattel mortgage, as long as the car is being used predominantly for business purposes. A chattel mortgage is a good choice for those who are registered for GST on a cash accounting basis, as you should be able to claim the GST from the vehicle’s purchase price as an Input Tax Credit on your next Business Activity Statement.

At Positive Lending Solutions, we are experts in business car loans. Our finance specialists could help you consider your options so that you get a business car loan that suits the needs of you and your business.

Call 1300 722 210 or apply for Pre-Approval to get started.

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