Equipment Finance: Chattel Mortgage, Lease, or Hire Purchase

Chattel mortgage

Under a chattel mortgage, the business takes ownership of the asset from day one. The financier holds a registered security interest (a mortgage over the chattel) until the loan is repaid. Title is in the business's name throughout.

Tax and GST treatment for a GST-registered business:

• GST claimable upfront on the purchase price as an input tax credit, claimed on the Business Activity Statement covering the purchase period.
• Depreciation claimable by the business as the asset owner, in line with ATO rules for the asset class.
• Interest on the loan deductible as a business expense over the life of the facility.
• Asset on balance sheet from day one, with the corresponding liability for the loan.

Finance lease

Under a finance lease, the financier owns the asset throughout the lease term. The business has the right to use the asset in exchange for monthly lease payments. At the end of the term, the business may have the option to purchase the asset (often by paying a residual / balloon amount) or return it.

Tax and GST treatment for a GST-registered business:

• Lease payments are typically tax-deductible as an operating expense over the term.
• GST claimed progressively on each lease payment, not upfront on the asset cost.
• Depreciation cannot be claimed by the business while the financier owns the asset.
• Asset typically held off-balance-sheet under historical accounting standards (changed under newer accounting standards which require operating leases on balance sheet, but the tax position remains as described).

Hire purchase

Under a hire purchase arrangement, the business commits to purchasing the asset upfront and pays for it in instalments. Title transfers to the business on the final payment. The structure sits between a chattel mortgage and a finance lease.

For income tax purposes, the ATO generally treats hire purchase the same as a chattel mortgage for GST-registered businesses. Depreciation and interest deductions follow the chattel-mortgage pattern. GST can typically be claimed upfront.

Hire purchase has become less common in 2026 for general commercial equipment because chattel mortgages produce essentially the same tax outcome with simpler documentation. Hire purchase still appears in specific industry contexts where it has historical traction.

The 2026 instant asset write-off

The Australian Government's $20,000 instant asset write-off has been confirmed for the 2025-26 financial year (until 30 June 2026). Eligible small businesses can immediately deduct the full cost of an asset under $20,000 in the year of purchase, rather than depreciating it over time.

The instant asset write-off is most readily accessed via chattel mortgage or hire purchase, where the business owns the asset and can claim depreciation against it. A finance lease arrangement does not give the lessee depreciation rights, which means the instant asset write-off is not available to the lessee on lease structures.

For a small business buying multiple sub-$20,000 assets (laptops, fit-out items, small machinery) before 30 June 2026, the wrapper choice can compound into a meaningful year-one tax position, subject to lender criteria and the business's eligibility under the relevant ATO thresholds.

Which wrapper fits which business

There is no single right answer; the right wrapper depends on the business's tax position and cash-flow priorities.

• Chattel mortgage typically suits a profitable GST-registered business that wants to claim GST upfront, claim depreciation, and own the asset. Especially compelling under the instant asset write-off.
• Finance lease typically suits a business that values smooth, tax-deductible monthly payments over upfront tax effect, or that intends to refresh assets at end of term rather than retain them.
• Hire purchase typically suits businesses with industry-specific reasons to use the structure; otherwise the chattel mortgage is generally simpler with the same tax outcome.

How Maxfin advises the wrapper decision

The firm coordinates with the client's accountant before recommending a wrapper. The right wrapper is a function of the business's tax position, cash-flow requirements and the asset's intended life. The accountant's view on year-one tax effect, combined with the broker's view on rate and lender appetite, generally produces the right answer.

Lender selection is then matched to the asset class. Vehicle finance, plant and equipment, technology and medical equipment each have natural lender fits. Some lenders specialise; some are generalists. Pricing and approval timeframes vary materially.

Maxfin sets up the file so the wrapper decision is locked in before contracts are signed. Changing wrappers post-purchase is rarely simple and may have tax consequences. The decision is best made once, deliberately, at the start.