Commercial Hire Purchase (CHP)

Commercial hire purchase is a type of vehicle lease whereby you obtain goods by hiring them over a set repayment term. As soon as the finance provider receives the last payment, the transfer of title for the vehicle is completed.

A commercial hire purchase is also known as a hire purchase, offer to hire or term purchase.

How does a commercial hire purchase work?

You do not become the owner of the vehicle until all monies owed under the arrangement are paid. You can however, claim a tax deduction for the depreciation on the vehicle as well as the interest component of the loan repayment where the vehicle is used for business purposes.

Balloons and terms

The commercial hire purchase balloon is the amount that will need to be paid to the finance provider at the end of the lease. By have a balloon the monthly repayments are cheaper and more affordable.

You make the decision to have a balloon payment and you may also choose to pay the vehicle down to zero which means once the final rental payment is made, you own the vehicle.

Who should consider a commercial hire purchase?

A commercial hire purchase is suitable when you use your vehicle wholly or predominantly for business purposes. You must use your vehicle for more than 50% of the time. It is also a great option if you would like to own the vehicle at the end of the lease.

What are the tax implications of a commercial hire purchase?

Companies or sole traders using the accrual method for accounting can claim the Goods and Services Tax (GST) as a lump sum on their next Business Activity Statement (BAS), whereas companies or sole traders using cash method for accounting can claim the GST evenly over the term of the agreement.

The monthly repayment or balloon amount is not subject to GST.

Where the vehicle is used for business purposes, the hirer can claim "interest and depreciation", ie interest on the lease payments and depreciation up to the luxury car tax threshold or depreciation limit of $57,123.

GST may also be claimed on the purchase price of the vehicle.