Quick answer
Hire purchase is a way to buy business equipment or vehicles in instalments. The financier buys the asset and hires it to you; ownership passes to your business when the final payment is made. For tax you're generally treated as the owner from the start, so you can claim depreciation and the interest component, and GST-registered businesses can claim the GST credit upfront. It suits buyers who want to own the asset outright.
Key points
- The financier owns the asset until the last instalment, then title passes to you automatically
- For agreements entered on or after 1 July 2012, the GST credit on the price can be claimed upfront, even on a cash basis
- Tax law treats you as the owner from day one, so depreciation and the $20,000 instant asset write-off can be available
- Works much like a chattel mortgage in practice; the real difference is when legal title changes hands
- A balloon lowers instalments but leaves a lump sum to fund at the end
- Legal owner during term
- The financier
- Ownership passes
- On the final payment
- Typical term
- 2 to 7 years
- GST credit
- Claimable upfront if registered
Hire purchase is one of the oldest ways to buy something on instalments, and for a while it looked like it might fade out of Australian business finance altogether. Its comeback, quiet as it was, comes down to one tax change in 2012. These days it stands next to the chattel mortgage as an uncomplicated route to own a machine, vehicle or piece of equipment without paying for it all on day one.
This page explains what hire purchase actually is, where it differs from the alternatives, and what to clarify with the financier before anything is signed.
What is hire purchase, in one paragraph?
A financier buys the asset you’ve chosen and hires it to your business under an agreement. You pay instalments, usually monthly, over a fixed term. While the agreement runs, the financier is the legal owner. When you make the final payment (including any balloon), ownership passes to you, usually without any further fee or paperwork beyond a small option payment in some contracts. Until that point the financier registers its interest on the PPSR, Australia’s searchable record of who has claims over goods,, so a search of the serial number will show the machine as encumbered.
Where does it sit next to a chattel mortgage and a lease?
| Point of difference | Hire purchase | Chattel mortgage | Finance lease |
|---|---|---|---|
| Title while you’re paying | Financier | Your business | Financier |
| Ownership at the end | Passes to you on final payment | Already yours; security released | Stays with lessor unless you buy it |
| Treated for income tax as | A sale plus a loan | A purchase plus a loan | A rental |
| Depreciation claimed by | You | You | Lessor |
| GST credit | Upfront on the price | Upfront on the price | On each rental |
| Balloon | Optional | Optional | Residual is set |
In day-to-day terms, hire purchase and a chattel mortgage feel almost identical: same monthly repayments, same terms, same paperwork burden. The chattel mortgage vs hire purchase comparison covers the finer points.
Why the 2012 GST change matters
Before 1 July 2012, a hire purchase split the price into a taxable component and a credit component. GST-registered businesses could claim GST only on the principal, and businesses reporting GST on a cash basis had to claim it bit by bit as they paid each instalment. That cash flow drag pushed many owners towards chattel mortgages.
For agreements entered into on or after 1 July 2012, the ATO treats the whole supply under a hire purchase as taxable, and a GST-registered business can claim the credit on the purchase price upfront, whether it reports on a cash or accruals basis. On an $88,000 machine including GST, that is an $8,000 credit in your next BAS rather than a trickle over five years. The gap with the chattel mortgage closed, and hire purchase became a sensible choice again.
Tax: treated as the owner from day one
Even though the financier holds legal title, income tax law generally treats a hire purchase as a sale to you financed by a loan. In practice that means:
- Depreciation is yours. Your business claims the decline in value of the asset.
- The interest component is deductible, scaled to the share of business use.
- The instant asset write-off can apply. If your aggregated turnover is below $10 million, an eligible asset priced under $20,000 can be deducted in full in its first year in service, and that limit no longer has an expiry date after legislation made it permanent from 1 July 2026. Read how write-offs interact with finance in our write-off guide.
Your accountant should confirm the treatment for your structure.
Weighing hire purchase against another structure for a particular asset? Start a short enquiry and we’ll come back to you with options; your credit file isn’t touched by asking.
A worked example
Here is how it might look. Every number here is illustrative, chosen to show how the pieces fit, not a quote.
A landscaping business buys a compact track loader for $88,000 including GST. It takes a five-year hire purchase with no deposit and a modest balloon.
- Month one: the financier pays the dealer. The business claims an $8,000 GST credit on its next BAS.
- Years one to five: the business pays monthly instalments. Each year its accountant claims depreciation on the $80,000 GST-exclusive cost and deducts the interest portion of the instalments.
- End of year five: the owner clears the balloon out of money set aside over the term, and title transfers. The loader has years of work left in it, and no more repayments.
Before committing, the owner ran three term lengths through our equipment finance calculator and compared the total dollars repaid under each, not just the monthly instalment.
What do financiers look at?
- The asset. Age, brand, resale market and whether it is easy to recover and sell. Yellow goods, trucks, utes and mainstream equipment are easiest.
- Trading history. Two years of ABN and GST registration opens the most doors; younger businesses can still qualify with a deposit or more paperwork.
- Cash flow. Recent bank statements; bigger deals add tax returns and a set of accounts.
- Credit and guarantees. Directors’ credit files and, for companies, usually a personal guarantee.
- Deposit and balloon. A deposit lowers the lender’s risk; a large balloon raises it.
Pros and cons
Worth having:
- You end up owning the asset outright.
- GST credit upfront and depreciation in your hands.
- Fixed repayments make budgeting simple.
- The asset is the main security, so property usually isn’t needed.
Worth weighing:
- You carry the asset’s resale risk, unlike an operating lease.
- You can’t sell the asset without paying out the agreement.
- A big balloon can be hard to fund at the end if you haven’t planned for it.
- Early payout may involve a break cost; ask how it’s calculated.
Who still chooses hire purchase?
Owners who plan to keep an asset well beyond the finance term: earthmovers, farmers, workshops, transport operators and trades. It also suits buyers whose preferred financier offers hire purchase rather than a chattel mortgage for their kind of asset. If you’d rather hand the asset back after a few years, leasing fits better. If the asset is part of a wider purchase, our equipment finance page covers the full menu.
Let’s find the right structure for your next asset
Hire purchase rewards owners who know what they’re buying and how long they’ll run it. If you have an asset in mind and you’re unsure which structure leaves you paying the least overall, that’s a conversation we’re glad to have.
Getting started is quick: a minute or so on the form. There’s no credit enquiry at that point. Your information isn’t farmed out to a list of financiers, so your mobile stays quiet. A person on our team looks over the asset, the price and your trading history, then calls you. Please be exact about the asset, its cost and your turnover; the better the information, the faster we land on the right option.
Frequently asked questions
Is hire purchase the same as a chattel mortgage?
They are close cousins. With a chattel mortgage you own the asset from the start and the lender takes security over it. With hire purchase the financier owns it until you make the last payment. Repayments, terms and balloon options are similar, and both let you claim depreciation and GST credits, so the choice often comes down to which the financier offers for your asset.
When can I claim the GST on a hire purchase?
For hire purchase agreements entered into on or after 1 July 2012, GST-registered businesses can generally claim the GST credit on the purchase price upfront, whether they account on a cash or accruals basis, rather than spreading it across the instalments. Your BAS agent can confirm the period to claim it in.
Can I use the instant asset write-off on hire purchase equipment?
Generally yes. For income tax a hire purchase is treated as a sale with a loan, so your business is treated as holding the asset. Small businesses with turnover under $10 million can use the $20,000 instant asset write-off, which became permanent from 1 July 2026, for eligible assets costing less than that amount. Check eligibility with your accountant.
What happens if I stop paying a hire purchase?
Because the financier still owns the asset, it can repossess it under the agreement and sell it. You may still owe any shortfall between the sale proceeds and what is outstanding, plus costs. Talk to the financier early if repayments are getting hard; restructuring is usually easier before arrears build.
Can I sell the asset during a hire purchase?
Not without paying out the agreement first, because you don't own it yet. Most financiers will give you a payout figure, and the sale proceeds go towards clearing it before title transfers to the buyer.
Can I get hire purchase with bad credit or a young ABN?
Sometimes. The asset itself is the security, which helps. Expect a lender to ask for a deposit, a director's guarantee or a stronger asset choice if the business is new or has credit blemishes.