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Caravan Commercial Hire Purchase

Commercial Hire Purchase for Caravans
Commercial Hire Purchase (CHP) is an increasingly popular means of financing new and used Caravans in Australia. As residential property prices in Australia increase and home rental markets tighten, caravans and mobile homes have become an attractive investment opportunity, both for tourism and accommodation.

Commercial Hire Purchase in Australia

CHP has been around since the 1920s, but it was the period of the 1950s to 1960s that Commercial Hire Purchase started to become popular, aided by the introduction of hire purchase regulations in the Australian Capital Territory in 1953 and Queensland in 1958.

How a Caravan Commercial Hire Purchase Loan Works

Under a Caravan Commercial Hire Purchase contract, the finance provider purchases the caravan, retains title over the Caravan and you pay it off it over an agreed period of time, just as if you were buying a house on mortgage.

The difference is that, in this case, there is no home being purchased. Instead, the finance company is providing the finance against the underlying asset (the caravan) and transfers title to you when the loan has been fully paid off.

Whilst ownership of the asset rests with the lender for the term of the loan, the opportunity to depreciate the asset for tax purposes belongs to the borrower from the outset.

This makes Caravan Commercial Hire Purchase an ideal way of financing a caravan for investment purposes.

Commercial Hire Purchase Tax Considerations

The interest component of a Commercial Hire Purchase is generally 100% tax deductible.

Depreciation on the asset portion of the Commercial Hire Purchase payments is also 100% tax deductible.

Instant depreciation of the entire asset value may be available for eligible businesses.

From the tax perspective, commercial hire purchase is effectively a combination of a loan and an operating lease.

The payments made by the business under the terms of the CHP are classed as both "debt interest" and "rent" for tax purposes.

This means that, as with an operating lease, only the interest component of the lease payments, (i.e. not the principal reduction of the loan) is tax against your business’s ordinary income.

However, the ability to the claim the asset depreciation against your business income from the year of purchase makes Commercial Hire Purchase very attractive.

The ATO\’s Instant asset write-off depreciation provisions for eligible businesses makes it possible to write-off the entire cost of the goods in the year of purchase.

Caravan Commercial Hire Purchase Availability

Commercial Hire Purchase is available for all types of new and used Caravans in Australia.

In Australia, a Caravan is defined as a motor vehicle with a body having an overall length not exceeding seven metres that is built to incorporate living or sleeping quarters and is capable of being drawn by another vehicle. It is usually equipped with cooking utensils, tableware and toilet and washing facilities.

Historically, a Caravan is a group of people, typically pilgrims, merchants and traders, travelling together across a far-eastern desert, often on camels. Commercial Hire Purchase is not available for this type of Caravan.

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