 WHICH PRODUCT IS BEST FOR ME?
The type of equipment finance you choose will depend on how you trade, or your borrowing entity. Typically, borrowers fall into five groups, outlined below. However, the decision is ultimately yours, and if you remain unsure about which type of finance is best, we recommend you speak with a financial advisor or accountant.
PAYG individual with "business use":
If you intend to use a vehicle primarily for business purposes, you could consider Hire Purchase facility.
PAYG individual without "business use":
If you do not have a business use application and wish to borrow primarily for private usage, there are two options available: a consumer loan or a personal loan.
PAYG individual with a salary-packaging option:
Your employer may permit salary packaging, in which case you would consider a Novated Lease.
A Novated Lease is an agreement between the employer, the financier and the borrower. If permitted by the employer, the lease payments can be deducted from the borrower's pre-tax income - ie, from the employer's bank account. As pre-tax income excludes GST, Novated Lease may benefit your taxation position.
Your employer is required to lodge a Fringe Benefits Tax (FBT) return to the ATO and pay pass the FBT on to you. It is up to you to determine if this arrangement is beneficial to you.
Company, Partnership or Sole Trader (borrowing entity) on cash accounting:
If a borrowing entity is registered for GST, it has a number of advantages.
It can use a Chattel Mortgage and claim back the GST, or a Finance Lease, which will reduce the loan amount by the amount of GST payable on the vehicle.
Company, Partnership or Sole Trader (borrowing entity) on accrual accounting:
If a borrowing entity is using accrual accounting, it has the option to use a Hire Purchase, which allows it to claim back the GST portion of the vehicle price as input credits.
How does a borrowing entity know which accounting method applies (cash or accrual)?
An accountant can help confirm this, or check the top right-hand corner of the entity's BAS statement, which will reflect either non Cash Accruals or Cash.
Most smaller borrowing entities opt for the cash basis, which means they cannot claim back the GST associated with the purchase price until the monthly finance payments are made.
However, a Chattel Mortgage will allow the borrowing entity to claim back the GST.
A lease is also beneficial from a GST perspective as the amount financed excludes GST.
The above is provided for information purposes only, and potential borrowers should not construe this as advice.
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