What You Want To Know About Commercial Hire Purchase

By Author: julia jones
Total Articles: 16
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In a commercial hire purchase is a short term agreement. Here the customer usually hires a vehicle from the financier for a fixed monthly repayment. Under this term, the financier first agrees to purchase the car on behalf of the particular customer, and then again hire it back to them. It is normally done over a short period of time. Though the customer gets the use of the vehicle for the term of the contract, he is not the owner of the vehicle. Here at the end of the contract, the customer repays the whole amount with the interest and get the ownership of the vehicle.

There are certain terms and factors concerned in a commercial hire purchase. It is a flexible term of contract and normally ranges from 24 to 60 months of time. The customer gets to know the proper cost and the total amount to be paid in advance. The interest rates and the monthly repayments are fixed in this term. However, a deposit either in cash or in trade may be attached to the term. A very good point of this kind of purchase is that, a tax deduction is available if the vehicle ...
... is used for business purposes and here the finance is secured again the vehicle allowing for the low interest rate.

It is generally a type of car lease. The customer obtains the vehicle by hiring them over a fixed repayment term. When the borrower completes paying the last rental of the vehicle, the ownership is transferred from the financer to the customer. However, under the agreement, though you do not become owner of the motor vehicle until you pay all the monies, you can still claim a tax deduction for the depreciation on the motor vehicle as well as the interest component of the loan repayments where the motor vehicle is used for business related purposes.

When vehicle is used for business purposes, the customer can claim depreciation. It can be claimed up to the depreciation limit on the contract as a tax deduction. However, the businesses using accrual accounting can claim the Goods and Service Tax as a lump sum on their Business Activity Statement. On the other hand, those using cash accounting can claim it in installments over the full term. The Goods and Service Tax is not charged either on the monthly repayment or on the final installment amount. In commercial hire purchase the term balloon has enough significance.

Balloon is the amount that the customer needs to pay to the finance financer at the end the term. The advantage is putting a balloon into the agreement makes the monthly lease payments cheaper. Generally the business organizations or the sole traders use the accrual method for accounting. They claim the Goods and Service Tax as a lump sum on their next Business Activity Statement. However, for taking a car lease, chattel mortgage can be another very good option. So, you can now take car lease easily for your business considering the accrual or the cash accounting.