Chattel mortgage vs hire purchase vs finance lease: which to choose

Short answer

All three finance a business vehicle or piece of equipment; the difference is who owns the asset and how the tax works. With a chattel mortgage you own the asset from settlement and the financier holds security over it. With hire purchase the financier owns it until you make the final payment, then ownership transfers to you. With a finance lease the financier owns the asset and you pay to use it, with options at the end of term. For most businesses buying an asset to keep, a chattel mortgage is the common choice — but the right structure depends on your accounting and cash-flow goals, so confirm it with your accountant.

Side by side

Tax outcomes depend on your GST registration, business-use percentage and circumstances. The car depreciation limit applies to passenger vehicles. Confirm treatment with a registered tax agent.

Why the ownership difference matters at tax time

Chattel mortgage. Because you own the asset from day one, it sits on your balance sheet and you claim depreciation plus the interest component of your repayments. If you're registered for GST, you claim the GST credit on the purchase price up front in the BAS for the period you buy — not spread across the term. Critically, an asset bought under a chattel mortgage is eligible for the instant asset write-offif it meets the threshold and is first used or installed ready for use in the income year. That combination — own it now, claim GST now, write it off now — is why it's the default for most equipment purchases.

Hire purchase.Since 1 July 2012, hire purchase is treated like a sale for GST, so you claim the GST up front much like a chattel mortgage, and you deduct depreciation and the interest charges. You don't hold title until the final payment, but for tax you're treated as acquiring the asset. It suits businesses that want ownership at the end with a defined payment structure.

Finance lease.The financier owns the asset; you pay to use it and deduct the lease payments (apportioned for business use). GST is charged on each payment rather than up front. Because you don't own the asset, it isn't your instant-asset-write-off claim. Leasing can suit businesses that upgrade equipment often or prefer to keep the asset off their own books.

How financing interacts with the write-off

This is the practical play for asset buyers right now: a chattel mortgage lets you keep your working capital in the business, finance the asset over its useful life, and still claim the full deduction this year if the write-off applies. The tax benefit lands at the same time whether you paid cash or financed — what changes is whether your cash is tied up in the asset or funding the work it was bought for. See our instant asset write-off guide for the current threshold and its legislative status, browse equipment finance for what our network funds, or estimate repayments before you talk to anyone.

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