Looking at financing your car for your business? 

Have you thought about a Chattel Mortgage?

There are a few options to finance your car, a chattel mortgage is the most common type. It works similarly to a personal loan, except the motor vehicle is the “chattel” (tangible goods), i.e. the security for the loan. The mortgage reference is the loan. 

If you think of it in terms of your home loan, your house is the security the bank has for providing you with a home loan. However, for a chattel mortgage, your interest rate will be fixed for the term of the finance.

I personally prefer using a chattel mortgage for a couple of reasons. 

𝐓𝐡𝐞 𝐟𝐢𝐫𝐬𝐭 𝐫𝐞𝐚𝐬𝐨𝐧 is the entitlement to claim the full amount of GST (limited to $5,885) on your next BAS. 

𝐓𝐡𝐞 𝐬𝐞𝐜𝐨𝐧𝐝 𝐫𝐞𝐚𝐬𝐨𝐧 is, currently in the 2023 financial year you are entitled to claim your motor vehicle purchase in full (up to $64,741). Next year, it will revert to traditional depreciation rules.

There are two types of tax deductions when you utilise a chattel mortgage are; interest on the finance and depreciation on the motor vehicle. Using the normal depreciation rules, the tax deductions (interest + depreciation) in the first couple of years of the finance term are more than the actual finance repayments.

For most of my clients, I usually recommend a 4-year term with no residual (balloon payment). Pay the car off in 4 years, it is about the useful life of a car in a business.