Equipment Finance Products

At this time of year it is very common to receive telephone calls about the finance options available for Plant & Equipment, motor vehicles and the like.

This can of course include refinancing.

Specifically, financiers and bankers will talk about Hire Purchase, Chattel Mortgages, Leases and other variants of these products. It is important to understand the different characteristics of each type of loan, particularly as they relate to legal ownership, cash flows, GST and Income Tax.

The following chart might help you navigate your way through the finance maze if you are considering a finance deal.

Finance Lease	Commercial Hire Purchase	Chattel Mortgage
Payment Structure.
Fixed term - must have a residual value.	Fixed term - a balloon payment is optional.	Fixed term - a final payment is optional.
Tax Advantages.*
Rentals are generally fully tax deductible. To obtain tax deductions, the assets are to be employed for business purposes and the residual value accords with Taxation Office guidelines. Depreciation cannot be claimed as a deduction for taxation purposes.	Rentals are not tax deductible. Instead, customer can claim depreciation and the interest cost on the borrowings.	Depreciation and interest are usually tax deductible.
Ownership/purchase of assets.
The customer has no automatic right or option to purchase the assets. The financier remains the legal owner of the assets.	The customer has the right to purchase the assets at any time. The financier remains the legal owner of the goods. However, for taxation purposes, the customer is the owner and may claim depreciation and the interest paid as deductible expenses, provided goods are used for business purposes.*	Customer acquires immediate ownership of the asset and grants the Bank a legal mortgage over the Chattel.
No deposit required.
The full cost of the goods must be financed under a lease. The customer can have no equity in the goods, eg trade-in or deposit.	The full cost can be financed if required. However, the customer may have equity in the goods. This is particularly relevant in respect to trade-ins.	The full cost can be financed if required. However, the customer may have equity in the goods. This is particularly relevant in respect to trade-ins.
Duties/taxes payable.
Rental Duty is payable (SA 0.75%). GST is payable on the repayments and residual balance.	Rental Duty is payable (SA 0.75%). GST paid on the principal value of the goods, claimed back by customer dependant on how they are registered for GST (cash or accrual) ie either on their next BAS or over the term of the contract	Stamp Duty is payable on the loan amount ($10.00 for the first $6,000.00 then $0.45c/$100 thereafter. The customer can claim a direct input tax credit (ITC) on the purchase price of the asset.

BankSA – A Division of St.George Bank Limited ABN 92 055 513 070 AFSL 240997. All Equipment Finance is offered jointly by St.George Finance Ltd ABN 99 001 094 471 – a wholly owned subsidiary of St.George Bank Limited and Focus Capital Group Ltd ABN 42 006 828 459. *We recommend you seek independent tax advice where appropriate. The information in this brochure is correct at time of printing (August 2004).

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