Hire purchase

A Commercial Hire Purchase (CHP) is a commercial finance product where the customer hires the vehicle from the financier for a fixed monthly repayment over a set period of time.

Commercial Hire Purchase can also be known as a Corporate Hire Purchase, Hire Purchase or Offer To Hire, and is often abbreviated as CHP or HP.

How Does a Commercial Hire Purchase (CHP) Work?

Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase the car on behalf of the customer, and then hire it back to them over a set period of time.

The customer has the use of the vehicle for the term of the contract but is not the owner of the vehicle. At the end of the contract term when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.

Benefits of a (CHP)

  • Flexible contract terms ranging from 24 to 60 months (two to five years)
  • Residual value (balloon or final instalment) may be placed on contract
  • Fixed interest rate
  • Monthly repayments are fixed
  • Costs are known in advance
  • Deposit (either cash or trade-in) may be used
  • A tax deduction is available when the vehicle is used for business purposes
  • GST is not charged on the monthly rental or residual payment
  • Customers registered for GST can claim the GST in the vehicle price
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Commercial Hire Purchase (CHP) suit?

A Commercial Hire Purchase (CHP) is suitable for companies, partnerships and sole traders who account for GST on an Accruals basis, and individuals using the vehicle for business purposes.

Tax implications of a Commercial Hire Purchase (CHP)

Where the hirer is registered for GST, they can apply Input Tax Credits to claim some or all of the GST contained in the purchase price of the vehicle.

Businesses using Accrual accounting can claim the GST as a lump sum on their next Business Activity Statement (BAS), whereas those using Cash accounting can claim the GST in instalments over the term of the contract.

GST is not charged on the monthly repayment or on the balloon (final instalment) amount. Where the vehicle is used for business purposes, the hirer can claim depreciation up to the Depreciation Limit and interest charges on the contract as a tax deduction.