“We understand the unique requirements of the aircraft industry..”

Commercial Financial products commonly used for financing aircraft include:

Leases

A lease by definition is “Renting an aircraft”. During the lease the Ownership of the Aircraft remains with the Finance company. This product has certain taxation advantages in that if the aircraft is 100% used for a business purpose the entire payment can be tax deductable*. A residual amount (end amount) is chosen from consulting tax guidelines and advice from your accountant. You then make lease payments over the term of the lease in equal amounts. At the conclusion of the lease the residual amount remains. The aircraft can at this point be sold or alternative finance can be sought. GST is payable on each payment. GST registered entity’s can claim back the GST. Under some circumstances up to 13 months payments can be made in advance (can be a tax advantage).

Advantages: Predictable payments, Set term, Tax advantages.

Disadvantages: No ownership of the goods, High exit fees for leaving the facility early (sometimes no ability to payout early), Residual amount at the conclusion of the agreement.

*Only if taxation guidelines are met in full please seek advice from your accountant to determine your individual position.

Hire Purchase

As the name suggests ownership under a hire purchase agreement only transfers to the purchaser (hirer) after the last repayment has been made. Hire Purchase agreements were very popular prior to the introduction of the GST. But have since become less popular due to ownership not residing with the purchaser but with the finance company. This has had serious consequences for entity’s that are GST registered not being able to claim back GST as they don’t own the goods. The product is therefore most suited to entity’s that do not have GST registration and are not intending to become GST registered. (there are always exceptions to these rules and this information is of a general nature only). Hire Purchase agreements run for a set term have a fixed interest rate and can be either a straight payment where there is no end payment. or with an end payment commonly known as a balloon. A balloon is selected to reduce monthly payment commitments and at the conclusion of the agreement need to be refinanced, the aircraft sold or paid out in full from the purchasers own resources. Depreciation and Interest can be claimed from a taxation perspective*. These amounts may at first cover or even exceed repayments made but in the final years of the loan, as depreciation and interest claims reduce they often fall below the repayments made.

Advantages: Fixed repayment, Choice of no end debt or balloon payment, Larger possible tax claim in the initial part of the hire purchase contract.

Disadvantages: Ownership remains with the finance company until the last repayment is made, GST implications, Depreciation and interest tax deductibility reduces over time.

*If the aircraft is being used for a business purpose

Chattel Mortgage

Chattel Mortgages became popular with the introduction of the GST. Purchases own the title of the aircraft on day 1 and the finance company takes a “Mortgage” over the Aircraft. This allows GST registered entities to claim back any applicable GST on their next BAS statement. The product generally offers a fixed interest rate, regular repayments and the option of a balloon at the end of the contract. After claiming back the GST some borrowers choose to incorporate these funds into their business cash flow. Another option is that a chattel mortgage can be structured to make the GST refund a bulk payment on your Chattel Mortgage contract. This will reduce payments over the contract period. This option must be set up prior to the drawdown of the loan. Depreciation and Interest can be claimed from a taxation perspective*. These amounts may at first cover or even exceed repayments made but in the final years of the loan, as depreciation and interest claims reduce they often fall below the repayments made.

Advantages: GST Implications, Fixed repayment, Choice of no end debt or balloon payment, Larger possible tax claim in the initial part of the hire purchase contract.

Disadvantages: Depreciation and Interest tax deductibility reduces over time.

Availability: WA, NSW, VIC, QLD, ACT, NT & TAS.

*If the aircraft is being used for a business purpose

These are the three most common products used for Aircraft finance in Australia. This is a general guide only and upon contacting our experienced Aircraft financiers we will be able to guide you to the most suitable product for your situation. Only an experienced financier like Nationwest understands aircraft and the unique requirements of our industry.