31 Oct 2019
BMT explains how to increase your cash flow by claiming depreciation
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When buying a new car (whether it is a new or used vehicle), one of the more confusing decisions is how to finance the purchase eg, borrow against your home loan, chattel mortgage, personal loan, novated lease etc.
There are a few alternatives and they each have their advantages and disadvantages.
Advantages:
Disadvantages:
Advantages:
Disadvantages:
Advantages:
Disadvantages:
Chattel mortgage is when you purchase and own the vehicle by taking a loan to suit your cash flow requirements. You may choose to include a balloon payment at the end of the term to lower the loan repayment commitments during the term of the loan. This type of finance also has tax benefits. You can claim the interest portion of the loan and depreciation on the item in your tax return, and if you are registered for GST, you may be able to claim the GST portion of the cost in your next Business Activity Statement.
Finance leases are the most common form of leasing and provide tax benefits for the percentage use of the car for business purposes. At the end of the lease, you may choose to re-lease for a further term, buy the car (the buy out figure is usually the residual value) or return the car (if the car is returned and then sold, the lessee will hold the liability for the difference in the event the sale price be less than the residual value). The ‘residual value’ is nominated at the start of the lease and is an estimate of what the value of the car will be at the end of the lease term.
Novated leases are arranged as an option with your employer as part of your salary package. They provide the employer with off balance sheet rental claims and the employer is responsible for payment of rentals whilst the lessee is in their employment. On leaving their employment the full responsibility for the vehicle transfers to the lessee and the tax advantages are lost. The best option will be entirely dependent on your personal financial and employment circumstances.
133 144 To go through your car finance options in more detail