Car Finance – Car Finance is an important part of a functional business.
There are many ways you can contribute the use of a vehicle for business purposes, but having a vehicle used solely for business is the best way to record the use of it for tax purposes.
Sole traders, companies and partnerships have five main options available to them. Here are some of the main types of business car finance.
Chattel Mortgage –
This allows a customer to purchase a vehicle through advanced funds by the creditor who has taken out a “mortgage” on the vehicle to secure the loan done by registering a Fixed and Floating Charge with ASIC. Once full repayment is received the ASIC charge is removed enabling transfer of the title.
Benefits include knowing the cost in advance, tax breaks when used for business, fixed interest rates and GST advantages for input credit.
Commercial Hire Purchase –
The creditor secures and pays for a vehicle on behalf of the customer to hire it to them for an agreed time frame. During this time the customer is open to use the car, but remains a leaser only. Once the hire term ends and a total price including interest, but minus residual costs, the customer becomes the owner.
The benefit of CHP is that finance is secured against the vehicle which results in fixed and lower interest rates. Also a deposit can be used to minimise the regular payment amount as well as the balloon or residual payment.
Novated Lease –
An agreement made between an employer, employee and finance company. This results in the employee undertaking a Car Lease or Finance Lease with a creditor, but where the employer takes the financial obligation such as monthly repayments and under the salary sacrificing arrangement extends the use of the vehicle to the employee.
The benefits of this are control, choice and portability for the employee as they are in charge of maintenance, choosing a car to suit their needs and the ability to take the vehicle with them should their job change. For employers there is no residual risk, limited administration needed to organise the arrangement and a reduction in pay-roll tax and Work Cover premiums.
Fully Maintained Lease –
This type of business car finance is the same as a Novated lease except that in addition to the salary sacrificing the expenses associated with the vehicle are used as deductions against the employee’s pre-tax income. The system for maintenance and fuel costs are organised with the financier.
The benefits of this type of arrangement for employees is that they save money by minimising tax and GST associated with the car itself and the maintenance costs. For the employer they can offer a more tailored remuneration package that costs the business very little in terms time, effort and risk of excess of vehicles if an employee leaves.
Finance Lease –
A financier purchases a car based on the customer’s needs and leases the vehicle to them offering a fixed monthly lease rental for an agreed length. When the lease term has ended the customer can choose to pay a final instalment and obtain ownership, trade the vehicle for value or re-finance the residual and continue leasing.
The benefit of this arrangement means flexibility in the contract terms, residual amount and repayment schedule. There are also fixed interest rates, tax breaks and GST benefits.
Give our office a call on 1300 256 267 to discuss car finance for businesses, further.