Commercial Hire Purchase

Purpose: A Commercial Hire Purchase agreement is an agreement to purchase a piece of equipment/vehicle subject to payment terms to the financier. You will automatically own the goods when you pay the final payment, unlike to a lease.

Term: The term of finance agreement can be from 1 - 5 years.

Deposits: Deposits are not required. You might choose to trade in an existing vehicle in order to put in a deposit to reduce the amount to be financed.

Residual/Balloon: You can choose to have a balloon payment as the last payment of your finance agreement. This balloon payment is usually between 10% - 40% of the cost price, but may be as low as one dollar, dependent upon the equipment.

Ownership: The financier retains legal title (ie: owns the goods) during the term of the agreement. You automatically secure ownership upon payment of the final instalment.

Accounting Benefits: For income tax and GST purposes, a hire purchase agreement is treated very differently to a finance or operating lease. Under GST, a hire purchase agreement is treated as a "taxable supply" on the commencement of the arrangement between the hirer and the financier.

With a hire purchase arrangement, there is deemed to be a sale of the equipment from the financier to the hirer, the GST liability arises at the commencement of the arrangement. Even though the total amount payable under the agreement will be paid by periodic installments and ownership of the equipment will not pass to the hirer until the final repayment. The financier, being the supplier of funds, is responsible for the payment of the GST liability.

Therefore the amount financed is inclusive of GST, and your monthly repayments are not subject to GST unless you are on a cash basis for GST. (Seek independent advice from your accountant if necessary). You can claim the interest component of all repayments. The depreciation of the goods is fully tax deductible providing goods are used 100% for business purposes.