Business vehicle finance in Australia refers to the various options available for businesses to acquire vehicles for commercial purposes without having to pay for them outright. These options provide flexibility in managing cash flow while ensuring that businesses have access to vehicles necessary for operations. Here are the main types of vehicle finance options available to businesses in Australia:
Chattel Mortgage
A chattel mortgage is a popular option for businesses that want to own the vehicle outright. The lender provides finance for the vehicle, and the business takes ownership from day one. The vehicle serves as security for the loan. This option allows for flexible payment terms, including balloon payments to reduce monthly costs, it is beneficial for businesses that want to claim tax deductions on the depreciation and interest paid.
- Ownership: Immediate
- Tax benefits: Claim GST on the purchase price and tax deductions on interest and depreciation.
- Best for: Businesses looking to own the vehicle immediately and use it for business purposes at least 50% of the time.
Finance Lease
In a finance lease, the lender purchases the vehicle and leases it to the business for a set period. The business makes regular payments but doesn’t own the vehicle at the end of the lease term unless they choose to buy it for a residual value (a balloon payment). This option frees up capital for other investments.
- Ownership: Lender owns the vehicle; business has an option to buy.
- Tax benefits: Lease payments can be tax-deductible as operating expenses.
- Best for: Businesses that need vehicles without the burden of ownership or that plan to upgrade vehicles frequently.
Commercial Hire Purchase (CHP)
With a commercial hire purchase, a business hires the vehicle and makes regular payments. Ownership of the vehicle transfers to the business only once all payments have been made. This option allows for flexible payment terms, including balloon payments to reduce monthly costs.
- Ownership: After final payment.
- Tax benefits: Interest and depreciation are deductible.
- Best for: Businesses that prefer ownership after the term and have flexibility in structuring payments.
Operating Lease (Novated Lease)
An operating lease is similar to a rental arrangement where the business uses the vehicle but doesn’t have ownership rights. At the end of the lease, the vehicle is returned to the lender, and the business can either upgrade or extend the lease. A novated lease is often used by employees as a salary-sacrifice arrangement, reducing their taxable income.
- Ownership: No ownership at any stage.
- Tax benefits: Lease payments are fully deductible, and GST can be claimed on the payments.
- Best for: Businesses that don’t want the risks and responsibilities of ownership or for employee vehicle packaging.
Tax Considerations*
- Depreciation: Australian businesses may be able to claim depreciation of the vehicle as a tax deduction
- GST Benefits: Businesses registered for GST can usually claim back the GST portion of the vehicle purchase, lease, or hire purchase.
Key Factors to Consider
- Cash flow impact: Different financing options affect monthly cash flow differently.
- Ownership needs: Some businesses may prefer full ownership, while others may benefit from leasing or renting.
- Tax benefits: It’s important to consider which option maximizes tax benefits and GST claims.
- Depreciation: Vehicles depreciate in value, so businesses need to evaluate whether owning or leasing is more financially viable.
These options are designed to support businesses of all sizes, from SMEs to large enterprises, allowing them to manage their vehicle needs efficiently.
*Please consult your accountant or financial adviser for tax advice.