When acquiring new machinery, vehicles, or technology for your business, choosing the right finance structure is just as important as choosing the equipment itself. The two most common options in Australia are a Chattel Mortgage and a Finance Lease. While both allow you to access assets without upfront capital drain, they have fundamentally different tax, GST, and accounting implications.
What is a Chattel Mortgage?
With a Chattel Mortgage, your business takes legal ownership of the equipment from the day of purchase. The lender secures the loan by taking a mortgage over the asset (the ‘chattel’). Once the final payment (including any balloon payment) is made, the lender’s mortgage is removed.
What is a Finance Lease?
With a Finance Lease, the lender purchases the equipment and leases it to your business for a agreed monthly payment. Your business has use of the equipment, but the lender retains legal ownership. At the end of the lease term, you typically have the option to purchase the asset for its residual value, upgrade to a new lease, or return the equipment.
Key Differences Compared
| Feature | Chattel Mortgage | Finance Lease |
|---|---|---|
| Ownership | Your business owns the asset from day one | Lender owns the asset during the lease term |
| GST Claim | Claim the full GST upfront in your next BAS | GST is claimed on each monthly lease payment |
| Tax Deductions | Claim depreciation and loan interest charges | Monthly lease payments are fully tax-deductible |
Which Structure is Right for You?
Choose a Chattel Mortgage if: You are GST-registered and want a significant upfront cash flow boost by claiming the GST credit immediately. It is also ideal if you want full ownership of the asset from day one and intend to use the Instant Asset Write-Off scheme.
Choose a Finance Lease if: You want to preserve capital, keep regular payments as low as possible, and want the flexibility to upgrade to newer technology at the end of the lease term without the hassle of selling old equipment.