Changes to Hire Purchase arrangements from 1 July 2012 in Australia

Previously when financing an asset with a Hire Purchase, only the asset attracted GST. From 1 July 2012, GST is now payable on the purchase price of the asset plus all term charges (interest) and fees.So, is a Hire Purchase still the right way for you to finance your assets? If you’re a company that is registered for GST, this extra cost can be offset against the GST that you have collected, and therefore not really an extra cost to you, as long as you can offset it. The change really affects individuals that are not GST registered.There are many sole traders that do not generate enough income to require them to be GST registered, so they have no way to offset the extra costs that a hire purchase would create. It leaves them with 2 options. Register for GST or find another way to finance their assets. Although registering for GST would bring benefits to them of being able to claim the GST, they must also now charge GST to their clients as well as maintain more paperwork and submit Business Activity Statements (BAS). So the benefits of the claims they make may be taken up with extra costs of bookkeeping. The other groups of people that will be affected are individuals that are receiving a car allowance to pay for the business usage of their car. Until now, a Hire Purchase had been a common way of financing their cars, as it allows for greater flexibility in how the loan operates.  They could put a deposit on the car to reduce the amount financed and had more control over what size balloon payment they had at the end of the contract. As a Pay As You Go income earner, there is no GST involved with their income. With the introduction of GST on the fee’s and charges, they will now have to pay more back on their cars. So what is the solution to keep costs down? There are a number of options available to people that do not want to have this increase. They could look to a Finance Lease. The main drawback to this though is that you must finance the whole cost of the car and the balloon payment is set as a percentage by the Australian Tax Office. A Chattel Mortgage is another option that works similar to a Hire Purchase, but does not attract the extra GST charge. For individuals that are using a car for business use, they can still take out a Consumer Loan. These can be structured the same as a Hire Purchase and business usage can still be claimed. They also provide greater protection for the borrower. But the loans can often include a $5 or $10 account keeping fee that main commercial loans do not include. If you have previously used a Hire Purchase to finance your assets, you should speak to a professional finance consultant that can tell you all the options available to you, and how they will affect you. At Cameron Scott Financial Services, we will always let you know all they ways you can finance your assets.