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Chattel Mortgage

Supplier: Finlease (Australia)

A tax effective business finance tool.

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A chattel mortgage is basically a business loan where the borrower actually takes title in the item being financed. So in the case of a piece of machinery for instance, you are simply the user of the machine but the financier owns it. So you don’t actually take ownership until the loan is paid out in full.

Advantages and applications
It is business finance solution for acquiring movable items. These may be relatively large assets which will generally have service life of several years or more.

  • Manufacturing machinery.
  • Cars, trucks and commercial vehicles.
  • Computers and IT systems.
  • Cranes and construction equipment.

Who can benefit most
This is ideal for smaller businesses who are under the simplified tax system (STS) and have a turnover less than $2 million. You are able to pool assets and claim the one depreciation rate of 15% in the first year and 30% diminishing value after that, no matter what type of asset is being financed.

Tax situation
With a Chattel Mortgage, the depreciation benefit is quite attractive to businesses who report GST on a cash basis, as you are entitled to claim the GST in full. You can also claim depreciation on the asset and the interest on the loan, but you’ll have to pay stamp duty up front.

Security
The security is the asset itself and the financier takes a chattel mortgage over that asset, which means there is a charge registered against your company.

Please note that Finlease service Australian customers only.

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