Hire Purchase from 4.99% p.a.

How Hire Purchase Works

Hire purchase is one of the oldest and most straightforward forms of equipment finance in Australia. The concept is simple: the finance company purchases the equipment on your behalf and hires it to you. You make regular fixed payments over an agreed period (typically 1 to 7 years), and once all payments are complete, the equipment becomes yours.

During the hire period, you have exclusive use and possession of the equipment. You are responsible for maintenance, insurance, and operating costs, just as if you owned it outright. The finance company retains legal title as security but has no day-to-day involvement with the equipment.

The hire purchase agreement specifies the total amount financed, the interest rate, the term, the repayment frequency (weekly, fortnightly, or monthly), and any residual value or balloon payment. At the end of the term, ownership transfers automatically once all obligations are met.

Hire Purchase Tax Treatment

The tax treatment of hire purchase differs from chattel mortgage in important ways. Since you do not technically own the equipment during the hire period, the GST treatment follows the hire payments rather than the purchase price. GST is included in each instalment and can be claimed back on each BAS return progressively.

This progressive GST recovery suits some businesses better than the lump-sum approach of a chattel mortgage. If your business does not have the cash flow to manage a large GST credit followed by repayments, the even spread of a hire purchase may be more manageable.

For income tax purposes, you can claim the interest component of each payment as a deduction during the hire period. Once ownership transfers, you can begin claiming depreciation on the equipment. If the asset is eligible for the instant asset write-off, you may be able to claim the deduction in the year ownership transfers.

When to Choose Hire Purchase

Hire purchase is particularly well-suited in several situations. If your business is not registered for GST (turnover under $75,000), the upfront GST benefit of a chattel mortgage is irrelevant, making hire purchase a simpler and equally cost-effective option. If you prefer the psychological simplicity of "paying off" the equipment with ownership as the end goal, hire purchase aligns with that mindset.

Hire purchase is also popular for businesses that want certainty in their cash flow planning. The fixed repayments make budgeting straightforward, and there are no variable rate surprises. For equipment that you intend to keep long-term (such as permanently installed manufacturing equipment or specialised tools), hire purchase provides a clear path to outright ownership.

Some industries have a strong tradition of hire purchase, particularly agriculture, transport, and construction. The simplicity and reliability of the structure has made it the go-to choice for many operators in these sectors.

Hire Purchase vs Chattel Mortgage: Key Differences

The decision between hire purchase and chattel mortgage often comes down to GST registration and cash flow preferences. If you are GST-registered and want the maximum upfront GST benefit, chattel mortgage is generally preferred. If you are not GST-registered, or prefer the progressive GST approach, hire purchase is the better option.

Both structures offer similar interest rates (from 4.99% p.a.), similar terms (1 to 7 years), and similar loan amounts ($5,000 to $1 million+). Both allow balloon or residual value options. The core difference is the timing of ownership and the GST treatment.

Our equipment finance specialists can model both options side-by-side, showing you the total cost, cash flow implications, and tax benefits of each structure for your specific situation. We recommend discussing with your accountant to determine which approach delivers the best after-tax outcome.