Need a new car, or a fleet of cars for your? If so, we have some good news! Smartline’s can help you get the car or fleet of cars you need to do business, without paying the full cost at once. And to make this news even better is the possibility of tax incentives when purchasing. Your experienced Smartline Adviser and your tax accountant can help you negotiate the options to find the right deal for you.
To get you started, we’ve put together a simple guide to car finance options to help you choose the solution that’s right for your business.
Different car finance options for business
If your car is used for business purposes only, there are several finance options: a chattel mortgage, an operating lease, a commercial hire purchase and a low-doc loan
A chattel mortgage involves borrowing money from a lender to purchase the car. The car is used as security against the loan. Depending on your situation, you may have the option to either borrow the full amount, or pay a deposit and borrow part of the amount. You may also have the option to reduce your monthly repayments by setting a residual value or final balance.
Generally, chattel mortgages are very flexible and offer a range of lending periods, usually from two to five years. With a chattel mortgage, you may be eligible to claim tax credits or interest paid on tax. Talk to your tax accountant to see if there’s a tax advantage to your business to purchase vehicles this way.
An operating lease means that the lender purchases the car and then leases it to you. The advantage of an operating lease is that the lender assumes responsibility for any risks associated with ownership. You pay regular instalments, like rent, for the period of the lease. At the end of the lease period, you have the option to renew the lease, update the vehicle, end the lease, or purchase the vehicle at a fair price.
A Commercial Hire Purchase (CHP), also known as Corporate Hire Purchase or Offer to Hire, is a commercial finance product where the contract is based on the same principles as a lease but is treated differently for tax purposes. With a CHP, the lender gives you possession and use of the goods in return for regular payments. CHP contracts can be very flexible allowing you to structure your loan and manage your repayments to suit your business and cash flow needs.
Under a CHP contract, the customer has the use of the goods for the term of the loan but is not the owner of the goods. GST is payable on the purchase price of the goods and also on all fees and charges associated with the loan. A loan like this is suitable for businesses (including companies, partnerships and sole traders) that are registered for GST and must account for GST on either an accruals or cash basis. These GST charges are payable upon settlement of the contract and can either be added to the loan or paid up-front.
A low-doc loan policy is available across most of the commercial loan types and requires you to provide less documentation to the lender. This might be a good solution if you’re a sole trader or small business owner however it is subject to certain credit criteria.
If you’re considering buying cars on behalf of your employees, a novated lease might be the way to go. A novated lease is an arrangement made between an employee, an employer and the lender. The lender purchases the car and the employer deducts a fixed amount from the employee’s pre-tax income to pay the lender. Employees can use the car for both personal and business use.
If you are an employer, you may have the option to purchase the employee’s choice of car at a fleet discount, which is not available to individual buyers. You, or your payroll department, will then need to set up the employee’s pre-tax income deductions. There may be tax advantages in using a novated lease to finance cars for employees. This can be a great option for rewarding your employees. It can encourage staff loyalty and help with staff retention.
How do you decide?
The right car finance solution for you will depend on the type of use and your tax situation. Book a chat with us and speak to your tax accountant to work out which solution will suit you and your business.