Chattel Mortgage is a loan facility where the client owns the asset but the financier takes security of the asset until the agreement is completed. In most instances a Chattel Mortgage can be 100% financed (including GST) or with an optional deposit.
Chattel Mortgage – Ownership
The ownership of the asset is you so as such create an asset to record the purchase of the vehicle (MV at Cost), total amount Ex GST as stated on the Tax Invoice from the car yard. A balloon payment is a large, lump sum payment that is a higher dollar amount than the regular monthly payment and is not included in the loan amount and as such will not be reflected in the liability you create on receipt of funds from the financier/funder.
1) Receive Money allocated against the Chattel Mortgage Loan Account, eg Esanda Car Loan
2) Spend Money/Enter Purchase allocated against the MV at Cost Account.
A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the cash method of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle’s price up-front.
The cost of the vehicle is reflected in the accounts by recording depreciation journals against the asset value (MV @ Cost) which your accountant/bookkeeper will take care of. As you make the payments (Spend Money) against the loan you will record a split transaction, allocating back against the loan, amortizing the liability (making it smaller) and the balance written off against the Interest Expense Account. At the end of the Chattel Mortgage Agreement you have to come up with the balloon payment or the funder/financier will take back the asset. It is normally acceptable to refinance the balloon payment with the same Financier. Find out more about depreciation here
Changes to GST treatment of CHP or Chattel Mortgages
While previously GST was only payable on the purchase price of the vehicle or asset, as of the 1 July GST will be payable on the purchase price of the asset or vehicle, all term charges (interest), and any fees. The newly-introduced GST on fees and interest will be payable upon settlement of the agreement, and can either be added to the loan or paid up-front.
For those customers who are registered for GST, the extra GST charged can then be claimed back as Input Tax Credit progressively over the life of the loan.