A chattel mortgage is a financing facility that allows the purchaser to claim instant GST benefits if the purchaser accounts for GST on a cash basis.
How does a chattel mortgage work?
A chattel mortgage occurs when a finance lender provides a loan to the borrower and the borrower uses that facility to purchase an asset such as a motor vehicle, truck, bobcat, etc.
Under a chattel mortgage the borrower becomes the owner of the asset at the time of purchase and the lender takes a mortgage over the asset purchased.
Once the contract is completed, the mortgage is removed giving the customer clear title to the asset.
Chattel mortgage features
Low establishment fees and monthly fees
Chattel mortgage terms range from 1 to 7 years
A tax deduction is available if used for business use
Chattel mortgage repayments are fixed for the term
The Interest Rate is fixed for the term of the chattel mortgage agreement
No GST is charged on the monthly chattel mortgage payment
Customers registered for GST can claim the GST that is included in the asset purchase price
Chattel mortgage taxation implications
A cash basis taxpayer for GST purposes is entitled to claim a GST input tax credit for the GST component of the purchase.
The monthly repayment or balloon amount is not subject to GST.
Cash basis taxpayers still retain their rights to claim depreciation and interest on the asset acquired under a chattel mortgage facility.