Commercial Hire Purchase (CHP)

A commercial car hire purchase is a method of vehicle financing. CHP essentially means that a finance company buys a vehicle for a customer and then in turn grants the client use and custody of the motor vehicle on an contractually stated payment plan. The purpose of this transaction is that ownership is gained immediately upon the client making the final payment including any outstanding balances.

Advantages

– Lower interest rates because it is secured finance (i.e. lenders offers the loan with the car as security)
– Various lengths in the repayment plans tailored to individual needs (two to five years)
– It allows to spread out the cost of your purchase
– The amount of monthly repayments are set, giving financial certainty
– The vehicle belongs to you after the final payment

Disadvantages

– The cost per month will usually be higher than vehicle leasing
– You have to consider the cost of depreciation of the vehicle if you decide to sell it
– Range of choice of vehicles may be an issue

Tax Implications of a CHP

– If the vehicle is used for business purposes tax deductions may be claimed
– If the purchase is registered for GST Input Tax Credits may be available. (An input tax credit entitlement generally is a repayment or credit of GST paid on supplies that are acquired for any business purpose in carrying on that business’ enterprise)
– With CHP financing GST is calculated and charged on the price of the motor vehicle but neither on the monthly repayment amounts nor on the residual amounts
– Tax deductions can also commonly be claimed for the decline in value of the car as well as on the interest charged

Eligibility Criteria for a CHP