Three reasons why a chattel mortgage is the savviest choice for owner drivers

One-stop financial partner, Savvy, outlines the main tax benefits of a chattel mortgage for asset finance.

That means, for starters, taking your tax breaks when you can get them.

It’s impossible to weigh up finance options as a business without weighing up the tax benefits too. If you’re a smaller operator or sole trader and you employ cash accounting, it’s well worth considering a chattel mortgage next time you purchase a vehicle – and your cash flow will be better for it too.

GST is a two-way win. It gets charged on the purchase price when you buy, not the monthly repayments or any residual amount. If you’re registered, you also get to claim some or all of the GST next time your Business Activity Statement is due.

That’s not the only good news where tax is concerned either. Not only can you claim the interest portion of repayments throughout the contract, but you also get to claim depreciation up to the ATO’s limit too.

Don’t forget the COVID-19 instant asset write-off benefits.

There’s no downside to choosing a chattel mortgage during the COVID-19 pandemic. The government increased the threshold from $30,000 per asset to $150,000 back in March. The measure lasts until the end of December, and you can claim if you first use a vehicle or asset between 12 March and 31 December 2020.

It’s worth remembering that for some assets, a further limit applies.

If a vehicle payload is a tonne or less and it doesn’t seat at least ten, you can only claim up to $57,581.

That exemption doesn’t apply to motorcycles. Trucks and passenger vehicles, which exceed the specification, also qualify for the emergency $150,000 threshold until the end of this year.

Remember, you can claim a deduction – only on the business portion of use – for as many assets as you have, so long as the cost of each falls below the $150,000 threshold.

If you decide to finance a purchase that exceeds the threshold under the current measures, businesses with a turnover that exceeds $10 million can still claim gradual deductions via their asset pool. However, if your turnover falls below that limit, you qualify for a deduction for the balance of the pool. That applies as long as it sits below $150,000.

It’s well worth doing the maths while the emergency instant asset write-off measures are still in place. We’ve seen many a business have to pivot or adjust operations in light of the pandemic. Government assistance is a response to that, and while for many, it will

be a lifeline, others will have an opportunity to expand or branch out. Again, it’s worth assessing the benefits of chattel mortgage asset finance if that sounds like your business.

It’s important to choose your own chattel mortgage terms. When it comes to repayment terms, chattel mortgages are at least as flexible as any other form of asset finance.

The majority of lenders offer products with the option to repay over periods between two and five years — although, there are financiers out there who will stretch to seven. Because a chattel mortgage is secured finance, you get the benefit of more attractive interest rates too.

Chattel mortgages also come with the option of a balloon payment. Incorporating some residual into your finance can be a great way to maintain healthy cash flow – but that’s not the only advantage. While a balloon payment lowers your monthly repayment amount, it also reduces the amount of loan principal you’re paying back – therefore increasing the tax-deductible portion of your repayments.

If you plan on updating an asset every two to seven years, balloon payments are incredibly useful. For example, limiting any residual to the trade-in value of a vehicle ensures every asset you’re financing is working for your business. If you don’t want to use a balloon payment, no problem. Using a cash deposit with chattel mortgage asset finance is also common — and it’s another way to reduce monthly repayments.

Opting to finance 100 per cent of the cost of a new vehicle also works well. It’s up to you how you make a chattel mortgage fit your business, but customisation is undoubtedly one of its proven strengths.

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