What is a Chattel Mortgage?
A chattel mortgage is a fixed (or variable) rate loan that resembles a tradition personal car loan you would apply for with your bank. The asset being purchased (car, equipment etc.) is used as security for the loan. The difference between a chattel mortgage and a commercial hire purchase is that from the start, your company owns the equipment being purchased. You then offer that piece of equipment to the bank as the security for the loan (much the same as a traditional car loan).
What is the usual loan term for a chattel mortgage?
Like all other types of equipment finance, the loan term for a chattel mortgage can range from 1 to 7 years. Terms longer than this could be available but it would depend on the type of equipment being purchased.
Can I purchase second hand goods under a chattel mortgage?
Yes, like most types of equipment finance (finance leases and commercial hire purchases) you can purchase second hand goods under a chattel mortgage. Like all other types of equipment finance, it will depend on the age and type of equipment being purchased.
What about tax deductibility and GST?
As you own the asset from the start, only the interest on the loan is tax deductable, however like a commercial hire purchase you can claim depreciation of the asset as well.
As for the GST component, it’s normally paid for in the price of the asset. GST is not incorporated into the finance arrangement.
You should seek accounting advice to ensure this form of finance is suitable to your business and taxation goals.
If you require further assistance, please contact us.