With chattel financing the borrower or mortgagee takes legal ownership of the equipment at lease commencement and the mortgagor or lender takes a mortgage over the equipment as security. A fixed charge is also generally registered against the mortgagee entity via an ASIC form 309
Advantages of chattel financing:
- No upfront cash outlay
- Equipment ownership transferred
- GST may be claimed upfront
- Flexible terms between 2-5 years
Businesses that use chattel mortgages
Chattel Mortgages are generally used by businesses that want to ensure equipment ownership and who can claim the GST upfront. In practice this tends to mean smaller businesses who use the cash method of accounting (i.e turnover of less than $1 million).
Tax and accounting treatment for chattel mortgages
The equipment is recognised as an asset in the mortgage balance sheet. The interest component of the lease payment and the depreciation allowance for the equipment may be claimed as deductibles for tax purposes. The GST on the equipment can be claimed upfront if the business uses the cash accounting method.