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Chattel mortgages

What is a Chattel mortgage?

Despite the name, a chattel mortgage has nothing to do with buying a house! It is a way for business owners to purchase assets which are used for business purposes. A chattel mortgage is a popular funding solution as it is flexible and has many benefits to the business owner.

Let’s break this down to understand the concept.  A chattel is the ‘movable property‘ or asset and examples include vehicles, boats, new business equipment or machinery and even mobile homes.  A lender finances a loan, you receive the chattel and you start to repay the loan to the lender. You own the chattel but the lender (which has financed you) has the security over the item until the loan is fully repaid. Once the loan is fully repaid, the lender ‘releases’ the security and ownership completely transfers to you. Other terms for chattel mortgage are “personal property security” or “lien on personal property”.

Benefits of this type of finance:

  • No deposit is needed
  • As the chattel is an asset of the business, the interest and depreciation may be tax deductible
  • This can help your cashflow
  • Often this is simplified invoicing to make budget forecasting easier
  • If you use a cash-based accounting system you can claim all the gst in your first BAS cycle. * Check with your accountant if this applies to you.

The flexibility of this type of finance is what appeals to many people. You can take out fully 100% loan or use equity or a trade in for part of the funding. It depends on the item being purchased and the seller but many vehicles are purchased his way.

What is the PPS in relation to a chattel mortgage:

When the Personal Property Securities Register (PPSR) was introduced in 2012 this affected how security was placed and recorded in Australia (Norbury, 2012). Section 12 of the Personal Property Securities Act 2009 (Cth) refers to chattel mortgages as a security interest. As such, the security of the chattel will be recorded on the PPS register by the lender until the loan is fully repaid. If you want to read more about the PPSR the Australian Government has this website with detailed information: https://www.ppsr.gov.au.

References:

Norbury, Michael (2012) Tax practice and the Personal Property Securities Act, Taxation in Australia, Vol. 47, No. 1, Jul 2012: 43-45

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