Ownership of the equipment is transferred to the lessee or borrower upon the final payment which may include a fixed residual or balloon payment.
Advantages of commercial hire purchase:
- No upfront cash outlay
- Flexible terms between 2-5 years
- Equipment ownership is transferred to the lessee
- GST benefits depending on accounting method used by lessee
- Generally no need for mortgage security
Types of business that use commercial hire purchases
The CHP product is commonly utilised for motor vehicle acquisitions but is also better used by businesses acquiring plant and machinery or other equipment with useful lives of 5 years or greater. Generally CHP is the preferred option by businesses that prefer owning the equipment.
Tax and accounting treatment for commercial hire purchases
The equipment is recognised as an asset in the lessee’s balance sheet. The interest component of the lease payment and the depreciation allowance for the equipment may be claimed as deductible for tax purposes. The GST on the equipment can be claimed upfront if the business uses the accruals accounting method.