What Is Commercial Hire Purchase? GST, Tax, Lenders and Payout
Asset and Vehicle Finance
Australian Guide
Commercial hire purchase lets an Australian business use a vehicle or piece of equipment now and own it after the final payment. This guide explains ownership, GST and Division 240, who still offers CHP, what lenders check, used and private-sale assets, how to compare the real cost, and what happens on payout, trade-in or default.
Quick Answer
Commercial hire purchase is business asset finance where the financier buys the vehicle or equipment and keeps legal title while your business uses it and pays instalments. Ownership passes to your business after the final payment, including any balloon. A chattel mortgage gives you ownership from day one.
Also called: equipment hire purchase, CHP, business hire purchase or a commercial hire purchase agreement. Not the same as a commercial goods loan, which some banks use as a name for a chattel mortgage.
How does commercial hire purchase work?
A commercial hire purchase separates possession from legal ownership. That is the core of any hire purchase definition: possession from day one, title at the end.
- You choose the asset and supplier. This might be a truck, excavator, vehicle, machinery or other eligible business equipment.
- The financier buys the asset. The financier, not your business, takes legal title during the hire period.
- Your business takes possession. You use the asset to produce business income while making the agreed repayments.
- You pay the instalments and any balloon. A larger final instalment can be used to reduce regular repayments.
- Ownership transfers at completion. Once the required final amount is paid, title passes under the contract.
When does ownership pass to your business?
Ownership passes to your business when the final required payment, including any balloon, has been made and any other completion conditions in the contract are met. Until then the financier holds legal title, so you cannot sell the asset or offer it as clean security without dealing with the financier first.
| Structure | Who owns it during the term? | What happens at the end? | Main practical question |
|---|---|---|---|
| Commercial hire purchase | Financier | Ownership transfers after the final required payment | Are you comfortable not holding legal title during the term? |
| Chattel mortgage / equipment loan | Your business | Your business already owns it; the lender releases its security when repaid | Do you want ownership from day one? |
| Finance lease | Financier | End-of-term treatment depends on the lease and any purchase, return or residual arrangement | Do you want use rather than ownership to be the starting point? |
On a phone, swipe the table horizontally to see every column.
Is a commercial goods loan the same as hire purchase?
No. Some banks market a chattel mortgage as a goods loan; it is the same structure as a chattel mortgage, not a hire purchase. Your business owns the asset from the start and the lender takes security over it, so check who holds title in the contract rather than the product name, and see how a chattel mortgage works if the quote turns out to be a loan.
How is GST treated on a commercial hire purchase?
For a hire purchase entered into on or after 1 July 2012, an eligible GST-registered business can generally claim the full input tax credit up front, including GST on the credit charge, whether it accounts on a cash or non-cash basis. A cash-basis hirer can claim up front instead of waiting until each instalment is paid, and a business that is not registered for GST has no credit to claim (ATO, GST, hire purchase and leasing, updated 6 April 2017, read October 2026).
| Agreement date | GST-registered, non-cash basis | GST-registered, cash basis | Not registered for GST |
|---|---|---|---|
| On or after 1 July 2012 | Full eligible credit up front on taxable components, including the credit charge | Full eligible credit up front on taxable components, including the credit charge | No input tax credit to claim |
| Before 1 July 2012 | Legacy rules apply; a separately disclosed credit component could be input taxed | Legacy attribution rules can produce instalment-by-instalment treatment | No input tax credit to claim |
What applied to agreements before 1 July 2012?
Before 1 July 2012, a separately disclosed credit charge was an input-taxed financial supply with no GST credit, and a cash-basis hirer claimed the credit on the price instalment by instalment. That is why Australian websites give different answers about hire purchase GST: older material can correctly describe those legacy agreements but be wrong if applied to a new contract. The GST law changed for agreements entered into on or after 1 July 2012, and for those agreements all components of the supply made under the agreement are taxable, "whether or not the credit component is separately disclosed" (ATO).
How does the car limit apply to a car on hire purchase?
If the vehicle is a car for tax purposes, the 2026-27 car limit of $69,883 caps the cost you can depreciate, and the GST credit on the price of a car above that limit is generally capped at one-eleventh of the limit, $6,353, before any reduction for private use (ATO, Car thresholds from 1 July, 9 June 2026, read October 2026). A car here means a motor vehicle designed to carry a load of less than 1 tonne and fewer than 9 passengers, so a ute, van or truck designed to carry 1 tonne or more, or 9 or more passengers, is not a car for this rule.
How does Division 240 tax a commercial hire purchase?
Division 240 of the Income Tax Assessment Act 1997 treats a commercial hire purchase as a notional sale of the asset to your business, paid for with a notional loan from the financier, even though the financier still holds legal title. Your business claims decline in value and deducts notional interest rather than the instalments, and private use reduces both deductions and GST credits.
- Holder: for tax purposes the hirer is usually treated as the holder of the asset and claims its decline in value, provided it is reasonably likely the hirer will actually acquire it (ATO, Guide to depreciating assets 2026, updated 30 May 2026, read October 2026).
- Notional interest: worked out under s 240-60 by applying the agreement's implicit interest rate to the outstanding notional loan principal, and deductible under s 240-50 only to the extent the asset is used to produce assessable income.
| Rule | What it changes | Question to ask |
|---|---|---|
| Division 240 | Treats qualifying CHP as a notional sale plus loan for income tax | Does this contract fall within the Division 240 rules? |
| Holder rule | Can treat the hirer as holding the asset for depreciation | Is it reasonably likely the business will acquire the asset? |
| Notional interest | Sets the deductible finance amount on the reducing notional loan balance, so it can differ from the finance charge in the schedule | What implicit interest rate does the agreement carry? |
| Car limit | Can cap depreciation cost and GST credit for cars above the annual limit | Is the vehicle a car for tax purposes, or an excluded/heavier commercial vehicle? |
Can you use the $20,000 instant asset write-off?
Only for an eligible asset costing less than $20,000, bought by a business with aggregated turnover of less than $10 million: from 1 July 2026 that threshold is permanent, applies per asset and is now law (ATO, $20,000 instant asset write-off, updated 27 August 2026, read October 2026). An asset costing more is depreciated over time instead; see the instant asset write-off entry.
Worked example: a $220,000 excavator in year one
Sources: Australian Taxation Office, GST, hire purchase and leasing (last updated 6 April 2017); ATO, Financial supplies (last updated 14 September 2026); ATO, Car thresholds from 1 July (9 June 2026); ATO, $20,000 instant asset write-off (updated 27 August 2026, now law); ATO, Guide to depreciating assets 2026 (updated 30 May 2026); ITAA 1997 ss 240-17, 240-20, 240-50 and 240-60. All read October 2026. General information only; your accountant applies the rules to your agreement.
Who offers commercial hire purchase in Australia?
Commercial hire purchase is offered mainly through bank business banking and asset finance divisions, though not every bank offers it, while many non-bank asset financiers focus on chattel mortgages, leases and rental (broker-desk observation, September 2026). Approval depends on both the business and the asset, so a product being available does not mean every applicant or every piece of equipment will qualify.
| Question | Why it matters | What to ask for |
|---|---|---|
| Is it a true hire purchase? | Product names vary, and a loan secured over the asset is a different structure with different ownership | Confirmation of who holds title during the term |
| Minimum amount and term | Each product sets its own limits, and they change | The current product limits in writing |
| Deposit | A lender may fund the full price for an approved application or require a contribution | The deposit required for your asset and file |
| Early repayment | Early payout costs can be significant on some contracts | The payout formula and any break or termination fee |
| Channel | Some banks offer it mainly to existing business banking customers (broker-desk observation, September 2026) | Whether you can apply as a new customer or through a broker |
On a phone, swipe the table horizontally to see every column.
What do you need to qualify for commercial hire purchase?
To qualify, you usually need to satisfy the lender on trading history, repayment capacity, credit conduct, the borrowing entity and the asset itself. A current ABN is only the starting point.
- Business history: ABN age, time trading, industry and continuity of ownership or management.
- Income and cash flow: tax returns, financial statements, BAS, business bank statements or other evidence accepted by that lender.
- Credit conduct: existing debts, repayment history, recent enquiries and any adverse credit events.
- Borrower structure: sole trader, company or trust, plus director or guarantor requirements where relevant.
- The asset: type, age, condition, purchase price, supplier, expected useful life and resale market.
Can a self-employed business get low-doc or alt-doc commercial hire purchase?
Sometimes, but low-doc does not mean no assessment. A lender may accept BAS or bank statements instead of a full set of tax returns in eligible cases, while newer businesses, overdue tax returns, adverse credit, older assets or specialised equipment can narrow the lender pool or increase the evidence required. Treat any published low-doc criteria as lender-specific.
What documents should you have ready?
Have the borrowing entity, asset and income evidence ready before you commit to a tight supplier settlement date. A clean file can include:
- driver licence or other identification for relevant applicants and guarantors;
- ABN, company or trust details and proof of who can sign;
- supplier quote, invoice or purchase contract with the asset clearly identified;
- vehicle VIN, plant serial number, registration or other identifying details where available;
- recent financials, tax returns, BAS or business bank statements if the lender requires them;
- details of existing business debts and asset-finance commitments;
- evidence of deposit or trade-in where relevant; and
- insurance details before settlement if required by the financier.
Earthmoving and civil contractors can start from the construction loan pack for plant and equipment finance and the construction finance hub for related guides.
Do you need a deposit?
Not always: some approved files are funded without a deposit and others need one (broker-desk observation, September 2026). A deposit becomes more likely because of the applicant, asset age, seller, loan size or lender policy, and a no-deposit advertisement is an eligibility possibility, not a promise of approval.
Because availability is narrower than for other structures (see the start of this section), ask the broker which current lenders actually offer hire purchase before comparing rates; if none fits, the same asset can be financed as a chattel mortgage. For how non-bank asset lenders differ, see how non-bank asset lenders set policy; if your bank has already declined you, here is how a broker can help after a bank decline.
Can you use commercial hire purchase for used equipment, private sales or auctions?
Yes, some lenders will finance eligible used vehicles and equipment, including some private-sale and auction purchases, but the asset and seller checks are usually more important than on a straightforward dealer purchase. Do not assume that winning an auction, signing a private-sale agreement or paying a deposit means the financier will settle; the same asset checks apply to any equipment finance for your business, not just hire purchase.
| Purchase route | Extra checks to expect | Main timing risk |
|---|---|---|
| Dealer | Invoice, asset identification, lender eligibility, insurance and any trade-in details | Dealer delivery date can still arrive before finance documentation is complete |
| Private seller | Seller identity, proof of ownership, payout of existing finance if any, PPSR search, valuation or asset inspection where required | The seller may expect cleared funds before the lender has completed verification |
| Auction | Auction terms, buyer's premium, settlement deadline, asset age/condition, PPSR and whether the lender accepts the auction house and asset | You can become unconditionally liable to settle before finance is formally approved |
Does asset age or condition change the approval?
Yes. A lender can limit the acceptable age at purchase or at the end of the finance term, require a valuation or inspection, reduce the term, ask for a deposit or decline specialised equipment with a weak resale market. For age limits by asset type, see financing used and aged equipment.
What should you verify on a private sale before paying a deposit?
Confirm the seller, the asset and any existing security interest before you commit funds you cannot recover. Match the VIN or serial number to the sale documents, conduct the appropriate PPSR search, ask how any existing financier will be paid out, confirm the lender accepts the seller and transaction type, and make sure the invoice or contract is in the borrowing entity's correct name.
What can go wrong if you bid at auction before finance is approved?
The biggest risk is an unconditional settlement obligation with no confirmed finance. Pre-approval is not final asset approval: the lender can still need the exact asset, invoice, seller, valuation, PPSR position and insurance before funding, and if the finance fails, the auction contract does not disappear.
For the settlement mechanics, see invoice upload, settlement and PPSR registration.
When is commercial hire purchase the wrong structure?
Commercial hire purchase is usually the wrong structure when you need legal title from day one, expect to sell or materially modify the asset during the term, want the widest lender choice, or are not registered for GST. A business that is not registered for GST pays GST on the hire purchase credit charge that it cannot claim back, while interest on a loan such as a chattel mortgage is an input-taxed financial supply with no GST (ATO, Financial supplies, last updated 14 September 2026, read October 2026). For a registered business that gap mostly falls away, as the GST section explains, so ownership, lender choice and exit terms decide the structure.
For the full side-by-side, see chattel mortgage vs lease vs hire purchase. Manufacturers comparing the options can read lease, rental, chattel or CHP for manufacturing equipment.
How do you compare the real cost of a commercial hire purchase quote?
Compare commercial hire purchase quotes on the total amount payable, all fees and the exit terms, not on the interest rate or monthly repayment alone. Put the cash price, deposit or trade-in, amount financed, term, balloon, total repayments, total credit charge, all fees, payout method, default rate and asset restrictions on one page before you sign. For current asset finance pricing, see chattel mortgage rates and fees.
| Item | What to write down | Why it matters |
|---|---|---|
| Cash price | Supplier price before finance | Stops finance pricing being confused with the negotiated asset price |
| Deposit or trade-in | Cash contribution and how any trade-in is treated | Changes the amount financed and your real upfront cost |
| Amount financed | Gross amount the financier is funding and whether fees are capitalised | Lets you reconcile the contract against the invoice and fees |
| Term and repayment frequency | Years plus monthly, quarterly or seasonal pattern | A longer term can lower repayments while increasing total interest |
| Balloon / final instalment | Exact dollar amount and due date | A lower monthly repayment can hide a large end-of-term obligation |
| Fees | Establishment, documentation, account, variation, payout and enforcement fees | Rate alone does not show total cost |
| Early payout | Formula, break costs, rebates and quote-validity period | Critical if you may refinance, sell or trade early |
| Default | Events of default, default interest, notice and enforcement rights | Business-purpose CHP may not have consumer-credit protections you expected |
| Asset restrictions | Rules on sale, relocation, modification, sub-hire and insurance | The financier owns the asset during the term |
How does a balloon on a hire purchase work?
A balloon is a larger final instalment that lowers the regular repayments but leaves more principal outstanding for longer, which can increase total interest and creates a larger amount to fund at the end. On a balloon hire purchase, ownership passes only once the balloon payment is made, so set it to the asset's likely end value and your exit plan, and treat any refinance of it as a future credit application; see balloon payments and residual values.
Worked example: why the lowest repayment can cost more
What insurance should be arranged before settlement?
Check the financier's insurance requirements before the supplier is due to be paid. The contract may require comprehensive cover, a particular insured value and the financier's interest to be noted. Do not assume the supplier, broker or lender will arrange the policy unless that is expressly confirmed.
Which business entity should sign the hire purchase?
The entity that will use the asset and claim the GST credits and deductions should sign, because the hirer named in the contract takes on the payment obligation. If the quote is in the wrong name, or you are moving from a sole trader to a company or trust, fix it before settlement rather than transferring the contract later.
Can you pay out a commercial hire purchase early?
Usually yes: you can pay out a commercial hire purchase early if the contract allows it, by paying the financier a written payout figure. The payout figure is not necessarily the remaining instalments added together: it can include outstanding principal, the balloon, accrued amounts, early termination or break costs and any rebate or adjustment required by the contract. Request a written payout figure with a validity date.
Can you sell or trade in the asset before the hire purchase ends?
Usually not without the financier's approval because the financier still owns it. A dealer trade-in commonly works by obtaining a payout figure, settling the financier from the sale or new finance, then dealing with any equity or shortfall. Do not hand over or sell the asset on the assumption that making repayments means you already own it.
What if you want to upgrade or move the finance to a new asset?
Ask whether the financier allows substitution or whether the existing CHP must be paid out and a new facility written. Changing the asset or borrower can affect the contract, PPSR registration, GST and tax treatment. A planned upgrade is one reason to compare CHP with structures that give the business legal title earlier.
Can you refinance a commercial hire purchase?
Yes, but a new financier pays out the existing agreement, so it is a fresh credit application on your current position and the asset's value, not an extension of the old contract. Get the written payout figure first and confirm the new financier will settle the old one directly; if the new facility is a loan rather than a hire purchase, ownership and the tax treatment change too.
Is there GST to adjust on an early payout?
If you pay out a hire purchase early and the financier rebates unearned charges, the total price has dropped, so you will generally have an increasing GST adjustment that claws back part of the credit you claimed up front; confirm it with your accountant. The ATO treats a rebate that reduces the price you paid as an increasing adjustment for the buyer (ATO, Making an adjustment because of a rebate, updated 10 April 2017, read October 2026).
For the mechanics, see what a payout figure includes, payout figure timing traps and transferring or substituting an asset finance contract.
What happens if you default on a commercial hire purchase?
On default, the financier may be able to enforce its rights against the asset, including repossession, subject to the contract and the Personal Property Securities Act. Business-purpose CHP should not be treated as if consumer default-notice rules automatically apply. Read the actual default and enforcement clauses, contact the financier early, and get legal advice if enforcement has started. Because the asset is used in a business, the contract can also contract out of some of the Act's enforcement provisions (PPSA s 115), so its default clauses carry more weight.
How does the PPSR apply to hire purchase?
A hire purchase agreement is a security interest under the Personal Property Securities Act (s 12(2)(e)), so the financier usually registers it on the PPSR to protect its priority. Financiers register hire purchase agreements on the PPSR because an unregistered interest can be lost if the hirer becomes insolvent; the PPSR records security interests and is not a register of ownership (see PPSR registration explained).
What should happen to the PPSR registration after payout?
Once the agreement is fully discharged and the financier no longer has the secured obligation, check that the relevant registration has been ended or amended as appropriate. This matters before you sell or refinance the asset because an old registration can delay settlement while the next lender or buyer asks for evidence that the prior interest has been released.
| Event | Ownership | Money question | PPSR / enforcement question |
|---|---|---|---|
| Normal final payment | Transfers under the contract after completion | Has every required amount, including any balloon, been paid? | Has the financier dealt with its registration after discharge? |
| Early payout | Transfers once the contract's payout conditions are satisfied | What is the written payout figure and valid-to date? | When will the old registration be ended or amended? |
| Trade-in | Financier must be dealt with before clean title can pass | Is there equity or a shortfall after payout? | Who coordinates discharge with the dealer and new financier? |
| Default | Financier remains owner until the contract is completed | What arrears, default interest, costs or shortfall can arise? | What enforcement rights apply under the contract and PPS law? |
If cash flow is tightening
- Contact the financier before another payment is missed
- Get any temporary arrangement in writing
- Keep insurance current
- Do not sell or move the asset contrary to the contract
- Get legal advice if enforcement is threatened
Avoid these mistakes
- Assuming consumer default periods automatically apply
- Ignoring notices
- Selling the asset without authority
- Letting insurance lapse
- Waiting until repossession has begun to get advice
Does the National Credit Code apply to a business hire purchase?
Usually not: the National Credit Code treats a hire of goods with a right or obligation to buy as a sale by instalments (Schedule 1, s 9), but it only covers credit for personal, domestic or household purposes or residential investment property, so a business financing equipment for business use sits outside it. ASIC says the Code applies where the borrower is a natural person or strata corporation and the credit is wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate or improve residential property for investment (ASIC, National Credit Code, updated 1 August 2025, read October 2026), and that "loans to companies are not subject to the credit legislation". See ASIC's National Credit Code guidance and its credit-law coverage FAQs.
| Hirer and purpose | Covered by the Credit Code? | What governs payout and default |
|---|---|---|
| Company using the asset in its business | No; ASIC says loans to companies are not subject to the credit legislation | The contract and the PPSA |
| Sole trader or partnership, wholly or predominantly business use | Ordinarily no, because the personal, domestic or household purpose test is not met | The contract and the PPSA |
| Individual, wholly or predominantly personal, domestic or household use | Yes; where the charge for the hire exceeds the cash price, s 9 treats it as a sale by instalments | The Credit Code as well as the contract |
PPSR and Credit Code sources: PPS reform and hire purchase, why register on the PPSR, enforcing security interests, hire and rental, and the Personal Property Securities Act 2009 s 12(2)(e) and s 115; National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009) s 9; ASIC, National Credit Code (updated 1 August 2025). Read October 2026. General information, not legal advice.
Commercial hire purchase is not just a different repayment label. The financier keeps legal title during the term, the GST answer turns on the agreement date, Division 240 can treat the hirer as the tax holder, and the contract determines much of the real exit and default risk. Before signing, compare the total payable, balloon, fees and payout terms, then check whether CHP still gives you a better outcome than a chattel mortgage or lease.
Key takeaway: choose the ownership and exit structure first, then compare lenders and price inside that structure.Frequently asked questions
With commercial hire purchase, the financier owns the asset during the term and ownership passes to your business after the final payment. With a chattel mortgage, your business owns it from the start and the lender takes security over it (see the chattel mortgage meaning). Ownership, lender choice and exit terms usually decide between them.
No. Some banks market a chattel mortgage as a goods loan; it is the same structure as a chattel mortgage for business assets, so your business owns the asset from the start. Under a hire purchase the financier owns it until the final payment, so check the contract for who holds title.
Generally yes, if you are a GST-registered business and the agreement falls under the current rules in the GST section, whether you account on a cash or non-cash basis. The credit includes the GST on the credit charge. Business use, tax invoice rules and the car limit for cars still apply.
Yes. Equipment hire purchase, CHP and business hire purchase name the same business-purpose structure: the financier owns the equipment during the term and ownership passes to your business after the final payment. Check who holds title in the contract, not the name on the quote (see what hire purchase means).
It depends on the file. The deposit section above explains when lenders fund the full price and when they ask for a contribution, which is more likely with older assets, private sales or newer businesses. For how a contribution changes the outcome, see how a deposit or trade-in changes approval.
Expect identification, the ABN and borrowing entity, the supplier quote or invoice, asset details and income evidence such as financial statements, tax returns, BAS or business bank statements, depending on the lender. If full financials are not available, see low doc equipment finance for the alternative evidence some lenders accept.
Usually, yes. A hire purchase agreement is a security interest under the Personal Property Securities Act, and financiers register it to protect their priority, including if the hirer becomes insolvent. The PPSR records security interests, not ownership; see what the PPSR records.
Yes, with some lenders and eligible assets, but expect extra checks on asset age, condition, valuation, seller identity, VIN or serial number, PPSR position and settlement documents. Confirm the lender accepts the exact asset and purchase route before you pay a non-refundable deposit; age limits are covered in used and aged equipment finance.
Contact the financier before the due date. You may be able to refinance the balloon, replace the asset and clear the old CHP, or pay it from business cash, depending on your credit position and the asset. Refinance is a new credit application, not an automatic extension; see the options when a balloon falls due.
Yes. A sole trader borrows in their own name, so the lender assesses the individual's credit alongside the business records and the asset. Where the asset is used wholly or predominantly for business, the National Credit Code ordinarily does not apply, so the contract governs fees, payout and default.
Yes, if a lender that offers hire purchase accepts you and the vehicle. Truck hire purchase and van hire purchase are assessed on trading history, income evidence, credit conduct and the vehicle's age and resale market. A van or ute that counts as a car for tax purposes is subject to the car limit; for heavier vehicles, see how truck finance works.
Usually not. The Code covers credit for personal, domestic or household purposes or residential investment property, so business-use equipment finance sits outside it, and ASIC says loans to companies are not subject to the credit legislation. The contract governs fees, payout and default, so check how a payout figure is built before you sign.
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