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There’s nothing like a good haggle when buying a new or second-hand car. Driving away in your new ride is sweeter when you’ve negotiated well.
But when it comes to buying a vehicle for your business, you usually don’t have time to comparison shop, research, drop in at car dealers, and explore the range of available discounts.
Instead of wasting time and increasing stress, simply turn to HIA Vehicles where the team know the car market up and down. They understand exactly what businesspeople in the building industry need.
To save time, HIA Vehicles offers a comprehensive online service. However, if you have questions and would like to lock in specific details, the staff are always friendly and knowledgeable.
HIA has partnered with Stratton Finance in HIA Vehicles to provide members access to a range of loan options. We talk to Toby Simmons, Chief Information Officer at Stratton Finance, about the three options when it comes to vehicle financing.
Each has different implications for tax and cashflow. The three options are:
A good old-fashioned car lease works as long-term rental. ‘You simply pay a monthly amount and claim GST on that amount,’ explains Toby. ‘The good news is that you don’t own the vehicle – it’s hired out to your business.’
The lease payments are deductible and at the end of the lease, you return the vehicle to HIA Vehicles, which sells it through a dealership or at auction. Another option is to purchase the vehicle by paying a final lump to HIA Vehicles.
A hire purchase lets you hire a vehicle for an agreed period, and at the end of the loan term, you take ownership of the vehicle. If you haven’t paid off the loan over the term, you may be required to make a ‘balloon payment’ (see explanation below) to cover the outstanding amount.
Toby explains: ‘Both the GST on the principal and interest contract are fully claimable, which you should do on the BAS when you make your first payment. If you’re reporting on a cash basis and you make your first payment in April, the entire GST for the vehicle, finance, the interest on it, and everything associated is claimable on that BAS.’
Unlike a lease or hire purchase, a chattel mortgage allows you to take immediate ownership of the vehicle. The lender takes out a mortgage on the vehicle as loan security, and you pay off the loan from the income the vehicle generates in your business. Repayments are usually structured over two to five years. The longer the term, the cheaper the repayments, but the more interest you need to pay.
‘It’s a lot like taking out a mortgage on a house,’ explains Toby. ‘A chattel mortgage is a security over the actual property itself, so you own the goods. Importantly, the GST is claimable when you buy the vehicle. You receive that immediately, which is good for your cashflow.’
While hire purchase was the most common option for tradies a decade ago, chattel mortgages have become a popular option now.
Once the chattel mortgage loan term is completed, there are two different options:
“You can just keep turning vehicles over every couple of years, or pay out the balloon and keep the vehicle,” says Toby. “When making this decision, it comes down to your cashflow. Look at how much of the payment you can afford each month.”
Even though most tradies end up choosing chattel mortgages to finance their vehicles, it’s still worth chatting to a finance professional, such as HIA Vehicles, for advice. ‘It’s important to structure your purchases in the most beneficial way,’ explains Toby. ‘There are many implications for a business so it’s important to be guided by a knowledgeable finance team.’
A balloon payment allows you to take an amount owing on the purchase price of your car and set it aside. The monthly instalment amounts are then calculated on a lower value, making repayments more affordable. In other words, the higher the balloon repayment, the lower your monthly repayment.
‘You’ll actually pay less on your monthly repayments throughout the lifetime of the loan,’ says Toby. ‘You can claim the GST back up front. Although you may end up paying more than the cost of the vehicle over the period of the loan, it more effective for you cashflow.’