If you have a business and are in the market for a company vehicle, then here in Australia you have quite a few options when it comes to financing. And if you make the right choice, you could save big on your new commercial purchase.
So what are the options that are open to you? Well, before we start talking ‘chattel mortgage’ this and ‘commercial hire purchase’ that, let’s first check to make sure that you really need a commercial vehicle.
Although some professionals simply can’t function without a vehicle, there are others for whom a company car may, in fact, be a bit of a luxury. While an electrician or a builder will need a van to carry their tools and get to a job site, an IT consultant could manage to get from A to B on public transport. If you fall into the latter category and don’t really need a vehicle to carry tools, then you must ask yourself if this car will help you improve your productivity. Remember this is a significant purchase, so it needs to have a positive effect on your bottom line.
You also need to be absolutely sure that you will use the vehicle primarily for business. Now, that’s not to say that you can never use it for weekend trips to the mountains or beach but you’ll want to drive it for work considerably more than 50% of the time. And unfortunately, commuting to the office doesn’t count as business use.
So once you’re sure that a commercial vehicle is what you need, then it’s time to sit down with your finance broker and have a look at your options.
The chattel mortgage
This is when your lender gives you the cash to buy the car and then takes a mortgage out over the vehicle as security. The great thing about this type of finance is that you take ownership of the car from the outset and there’s no GST on your repayments or residual payment. You can even claim the GST on the purchase price of the vehicle as an input tax credit on your Business Activity Statement (BAS).
The finance lease
With this type of finance, your lender buys the car, and they lease it to you for an agreed upon period. With this type of lease there’s no commitment to purchasing the vehicle. However, you can opt to pay a residual and take ownership of the car at the end of your term.
The novated Lease
This is a salary packaging option which allows you, the business owner, to lease a vehicle on behalf of your employee. You accept full responsibility for making the monthly payments, and your employee will save money by paying with pre-tax dollars. The downside here is that the employee owns the vehicle and not the company which some employees may not be too keen on.
The operating lease
An operating lease is much like a finance lease except you have no option to buy the vehicle at the end of the term. Maintenance costs are covered, and monthly payments are set for the term making it a good option for small businesses on a tight budget.
Commercial hire purchase
With this option, your lender will take ownership of the vehicle and allow your business to use it for an agreed upon period. You only take ownership of the vehicle when the final payment goes through.
So which one is best? Well, that depends on a series of factors such as your current budget, and your business forecast. However, if we were to choose one we would opt for the chattel mortgage as it is the product that offers the most savings in terms of tax, and let’s face it, everyone wants to save on tax, right?
As Australia's largest car finance broker, Stratton Finance know a thing or two about loans and finance. With over two decades of experience in the field they are one of the most trusted authorities in the industry.