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Save Substantial Tax with Commercial Vehicle Hire Purchase

When you consider financing for your business assets, the innumerable choices available in the market can be overwhelming. Let alone choosing an option, sometimes even differentiating one from the other can be confusing.

To make it easy, I shall introduce you today to one of the most common modes of business asset financing, namely commercial vehicle hire purchase. I shall also bring forth its various pros and cons in order to determine if this option is the ideal one for you.


Explanation of Commercial Vehicle Hire Purchase

explanation of commercial vehicle hire purchase

Also known as hire purchase or offer to hire, commercial hire purchase (CHP) is a category of vehicle financing offered at a fixed rate. This fixed rate is called commercial hire purchase interest rate. In this agreement, your financial lender will purchase the vehicle at an amount inclusive of GST. They will then give it to you for hiring against fixed repayments over a pre-decided time period.

During this period, you can use the vehicle but you do not have any legal rights over it. After the CHP term is over and you have cleared all your instalments, including interest, you can gain ownership of the vehicle.


Who Can Opt For Commercial Vehicle Hire Purchase?

All charges related to the term and fees of a CHP are subject to GST since they fall under taxable supply.

Now, if your business accounts for GST payments – either on cash or accrual basis – CHP serves as a positive step for you. This is because you can claim tax deductions on this loan.

However if your company does not account for GST payments, then you might want to look out for other loan options.

Detailed Insight Into  Tax Benefits Of Commercial Vehicle Hire Purchase


tax benefits


  1. If you are a sole trader, venture partner, or company owner who uses the accrual method for GST, you can claim the GST component on the purchase price of your vehicle in the next Business Activity Statement (BAS).

    According to Australian Taxation Office, this is how you can claim GST credits on hire purchase when you account for GST on non-cash basis:

     australian taxation office 

  2. If you use the cash method for GST, you can claim GST in equal instalments over the agreement term.

     According to Australian Taxation Office, this is how you can claim GST credits on hire   purchase – when you account for GST on cash basis:

     australian taxation office 

  3. No GST is charged on your repayment amount or balloon payment.

  4. You can even claim interest component and depreciation on the loan as a tax refunds.

  5. All financial commitments for hire purchase are entered as capital expenditures on your balance sheet.


What Are The Additional Benefits Of Commercial Vehicle Hire Purchase?


additional befits of commercial vehicle


Apart from tax benefits, CHP comes with several additional positives as well. To highlight a few:

  1. You can choose from various loan structures, depending on your requirements. Loan terms vary from 12 to 60 months.

  2. You can opt for flexible balloon payment options – ranging from 0% to 60%. However, factors such as age and type of vehicle will affect what balloon payments you can have. 

  3. Since CHP is a type of secured loan – where your vehicle is used as security – you are entitled to lower commercial hire purchase interest rates.

  4. You do not require to pay any deposit amount upfront.

  5. Since you have an even distribution of fixed instalments, you can put your cash reserves to more efficient use in the business. This also allows for organised future planning and accurate budget forecasting.

  6. Fixed instalments protect you from varying interest rates and unpredictable surges.

  7. You get automatic ownership of the vehicle at the end of the agreement.

  8. You can schedule your monthly payments to suit your requirements and improve cash flow.



The main factor to consider when using a commercial hire purchase is what tax benefits you might be eligible for. Depending on your cash flow and budget, you need to dig a bit deeper into the financial realm and its jargons before arriving at a decision.

In order to secure your business, arriving at the right vehicle financing option is important. I hope my suggestions here will help you in taking a step in the right direction.



Please always seek tax advice from your accountant before entering any financial product


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