Since the introduction of GST, Chattel Mortgage (CM) has become a popular business finance product. CM allows immediate availability of an input tax credit for businesses
regardless of whether they are cash or accrued based (not the case with CHP).
A Chattel Mortgage contract is a loan secured by a mortgage over the equipment
financed. A Chattel Mortgage contract is similar to a Hire Purchase except that the
mortgagor has legal title to the equipment at commencement, rather than on final
payment. Security is the mortgage, which gives the financier title under certain
circumstances (eg default).
Chattel Mortgage is only a supply of finance.
The financier provides a loan that is used
by the client to purchase equipment. The supply of goods is from a Supplier/Vendor
dealer direct to the client.
| Key Points: |
| 1. |
The client is the purchaser, and pays GST in the purchase price to the supplier. |
| 2. |
The financier pays no GST and has no entitlement to input tax credits. |
| 3. |
Monthly repayments do not include GST or stamp duty. |
| 4. |
There is no taxable supply of goods, but a financial supply only. Stamp duty is
payable up front with the first payment. |
| 5. |
The borrower is entitled to claim interest paid and depreciation on the goods. |
| 6. |
Budget control, fixed rate lending and capital conservation. |
| 7. |
Repayment structures may be designed to suit the individual needs e.g. business
cash flows. |
| 8. |
CHP payment options are tailored to suit the cash flow requirements of a
business and ensure budget stability using fixed monthly, quarterly, half-yearly
or yearly payments. Alternatively, step payments may be lower or higher in the
beginning and increase/decrease over the term (including balloon payments). |
| 9. |
Repayments may either be in advance or in arrears with the possibility of providing
a “Balloon End Payment” structure. |
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