A Chattel Mortgage is a secured loan that is wholly or predominantly for business use. The financier advances the funds to the borrower in order to purchase the vehicle, or other asset, whilst the financier takes a mortgage, or charge over the asset.
The borrower takes ownership from purchase date allowing all the GST from the purchase price to be claimed in their first BAS after purchase date if applicable, as opposed to claiming the GST over the term of the loan.
As the vehicle would be a capital asset, none of the principal from the repayments would be tax deductible; however the depreciation on the vehicle and the interest component can be claimed as a tax deduction.
The benefits of using a Chattel Mortgage are flexible loan terms, from 12 months to 60 months and with some lenders may have the option to extend this, the option for a balloon payment at the end, fixed payments for the whole term of the finance, the option to add loan protection or vehicle protection to your finance package, the option to finance the full amount, or reduce the borrowed amount through a deposit or trade in, claiming GST upfront which may be good for cash flow and full ownership of the vehicle.
There is no GST payable on the loan with a Chattel Mortgage. The GST is payable on the purchase only, which if the entity making the purchase is GST registered, may be claimed as an input tax credit in their next BAS.
A Chattel Mortgage is not exclusive to GST registered businesses. This loan type can be used for individuals, or non GST registered entities, as long as the purpose of the vehicle will be used for more than 50% business usage.