In Australia, businesses and individuals have several options for acquiring equipment or vehicles, each with distinct features: rental, leasing, chattel mortgage, and commercial hire purchase (CHP). The choice depends on financial goals, cash flow, and ownership preferences.
1. Rental
- Overview: Renting involves short-term use of an asset without ownership or long-term commitment. Renters pay a periodic fee and can return the asset when it’s no longer needed.
- Key Features:
- Flexibility with no fixed-term contracts.
- Maintenance and insurance are typically included in the rental fee.
- No ownership rights or residual value at the end.
- Best For: Short-term needs or rapidly depreciating assets, such as construction equipment.
2. Leasing
- Overview: Leasing allows businesses to use an asset for a fixed period in exchange for regular payments, without ownership at the end. Leases can be operational (short-term) or finance leases (long-term).
- Key Features:
- Tax-deductible lease payments.
- Maintenance may be included in operational leases but not finance leases.
- No residual value risk; ownership remains with the lessor.
- Best For: Long-term use without the responsibility of ownership, especially for equipment likely to become obsolete.
3. Chattel Mortgage
- Overview: A chattel mortgage involves borrowing money to purchase an asset, which the lender secures against the asset. The borrower owns the asset from the outset.
- Key Features:
- GST is claimable upfront on the asset price for GST-registered businesses.
- Interest and depreciation are tax-deductible.
- Ownership provides flexibility to sell or upgrade.
- Best For: Businesses wanting ownership with immediate tax benefits.
4. Commercial Hire Purchase (CHP)
- Overview: With CHP, the lender purchases the asset and hires it to the business over a fixed term. Ownership transfers only after all payments are completed.
- Key Features:
- Payments include principal and interest.
- Interest and depreciation are tax-deductible.
- GST applies only to repayments, not the asset price.
- Best For: Businesses preferring a structured repayment plan leading to ownership.
Conclusion
The choice between rental, leasing, chattel mortgage, and CHP depends on factors such as asset usage duration, ownership preferences, and tax considerations. Businesses should assess their cash flow and financial strategy before deciding.
