Commercial Hire Purchase is a contract by which a person buys goods for their business, using those goods as security.

It would be deemed that the vehicle will be used wholly or predominantly for business or investment purposes. They pay a specified number of instalments and ownership to the goods does not pass to the borrower until after the final payment has been made.

With a Commercial Hire Purchase agreement, you have the option of a Balloon payment ranging from a maximum percentage (usually set by the financier) down to nil. Having a balloon can benefit the you by allowing lower monthly payments.

From a taxation point of view the you can claim the interest on the loan and the depreciation on the vehicle at the business % use for individuals and fully for a company (Fringe Benefits Tax payable on private use). Note – for vehicles over the luxury car limit, the vehicle can only be depreciated up to the Luxury Car limit. The interest can be claimed on the full loan amount including loans over the Luxury car limit

When a client purchases a vehicle for business use, they are entitled to claim the GST on the purchase price of the vehicle as an input tax credit. The amount claimed is also limited to that of the Luxury Car limit.  

GST will be charged upfront on all scheduled interest and credit fees, such as establishment fees and monthly administration fees. Most finance companies will finance the GST into the Hire Purchase.

The way that this GST is claimed back will be determined by how the client accounts for GST and by the date the Hire Purchase is settled. If the client accounts for GST on an accruals or cash accounting basis then the full GST can be claimed as an input tax credit up front. Note – Customers not registered for GST will be unable to claim any of the GST components on a Hire Purchase

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