When businesses set their sights on acquiring valuable assets, the choice of financing becomes a pivotal decision. Not only do different asset finance options cater to diverse needs, but they also come with varying implications for GST credits, depreciation, and tax deductibility, all regulated by the Australian Taxation Office (ATO). In this comprehensive guide, we’ll delve into four common asset finance types—Hire Purchase, Chattel Mortgage, Unsecured Finance, and Finance Lease—and explore both their common use cases and their impact on tax-related factors.
*Please note this blog post is only a guide and not financial or tax advice and we encourage you to seek the help of a registered accountant to determine the tax implications of each type of finance.
1. Hire Purchase: Gradual Ownership and Tax Considerations
Common Use Cases:
Hire Purchase (HP) is a financing solution that allows businesses to acquire assets while making instalment payments over time. It’s an ideal choice for businesses aiming to expand their fleet of vehicles, upgrade machinery, or obtain essential equipment.
Tax Implications:
GST Credits: As the ownership gradually transfers to the business, they can claim GST credits on the GST component of each instalment.
Tax Deductibility: Interest paid on instalment payments is generally tax-deductible, providing potential tax relief.
2. Chattel Mortgage: Immediate Ownership and Tax Considerations
Common Use Cases:
Chattel Mortgage is a financing option where businesses gain immediate ownership of an asset upon purchase. This suits businesses seeking ownership from the outset and who intend to benefit from potential tax advantages.
Tax Implications:
GST Credits: Businesses can claim GST credits on the entire GST amount of the asset’s purchase price.
Tax Deductibility: Interest payments on the mortgage are often tax-deductible, contributing to potential tax savings.
3. Unsecured Finance: Quick Funding and Tax Considerations
Common Use Cases:
Unsecured finance offers swift access to funds without collateral requirements, making it suitable for managing working capital, seizing growth opportunities, and supporting marketing efforts.
Tax Implications:
GST Credits: GST credits can be claimed on the GST component of the asset’s purchase price.
Tax Deductibility: Interest payments on unsecured loans are typically tax-deductible, aiding in reducing taxable income.
4. Finance Lease: Temporary Use with Tax Considerations
Common Use Cases:
Finance Lease arrangements allow businesses to use an asset for a predetermined period, making it advantageous for industries that require frequent technology updates or temporary project needs.
Tax Implications:
GST Credits: GST credits can often be claimed on the GST portion of lease payments, as per ATO rules.
Tax Deductibility: Lease payments are usually tax-deductible, aiding businesses in managing taxable income.
Asset finance options offer businesses flexibility in acquiring essential assets, and each type comes with distinct use cases and tax implications. To navigate these choices effectively, it’s wise to consult financial experts or tax advisors who can help align your financing decisions with both your business objectives and ATO regulations. By comprehensively understanding the implications, businesses can not only optimize their financial resources but also ensure compliance and maximize potential tax benefits over time.
Speak to one of our asset finance specialists today on 1300 831 288.
