Obtaining finance to purchase a car is a widely adopted and sometimes preferred method to fund acquisition, as opposed to paying in cash and thereby tying up required working capital for one’s business. Therefore, it is important to understand the different benefits of obtaining finance through a lease versus hire purchase and Chattel mortgage.

The table below depicts the benefits of the different options. Hire purchase and Chattel mortgage are treated very similar for tax purposes therefore are combined for this exercise:

 Hire purchase /
Chattel mortgage
Lease
OwnershipYouNot you
GSTBusiness use of the GST on the purchase price1/11th of lease payments x business use
Tax DeductibilityInterest component of the repayments and depreciation of the carThe full lease payment
Complexity of AccountingNot simpleSimple

We strongly suggest that you contact us before you obtain a car loan, to allow us to run through the benefits of these finance options with you and conclude to which option is better suited to your individual needs. If required, we can also connect you with our network of finance partners to help you explore the best finance solution for you. Also, it is important to note that some agreements may be labelled as a ‘lease agreement’ when in actual fact when reading the detail they are a hire purchase  – so it is vital that as your trusted advisor we read through these contracts before you sign on the dotted line.

Please call us on +61 3 8319 4076 if you have any questions.