Chattel mortgage vs finance lease: the difference shows up on your BAS

Ask two financiers to quote on the same tipper truck and the monthly repayments may look almost identical. The gap between a chattel mortgage and a finance lease isn’t really in the repayment. It’s in who holds legal title, when the GST comes back to you, which items your accountant claims at tax time and what happens on the last day of the contract. Get those four right and the choice usually becomes obvious.

The four differences that matter

	Chattel mortgage	Finance lease
Who owns the asset	Your business, from the day it settles; the lender holds a security interest	The financier; your business rents it for the term
GST	The full GST in the price is usually claimed on your next BAS	GST is included in each lease payment and claimed as you go
Tax deductions	Depreciation (or the instant asset write-off if eligible) plus interest	Generally the lease payments, to the extent of business use
End of term	Pay the balloon, refinance it or sell the asset	Pay the residual, re-lease or have the asset sold
Who carries value risk	You	Also you: a shortfall below the residual is payable
On your records	An asset and a loan	Lease payments (reporting entities may also record a right-of-use asset)
Security	The asset, registered on the PPSR	The financier’s ownership, also usually registered on the PPSR

Why the GST timing can be worth thousands

This is the row that changes cash flow most. Take an illustrative earthmoving contractor buying a tipper truck for $132k including GST.

• Chattel mortgage. The contractor owns the truck from settlement, so the $12k of GST in the price is typically claimed as a single credit on the next BAS. If the business lodges quarterly, that money comes back within a few months, sometimes faster than the first few repayments add up.
• Finance lease. The financier buys the truck and claims that GST itself. The contractor pays GST on every monthly payment and on the residual, and claims each credit along the way. The total GST is still recovered, but over five years rather than in one hit.

For a GST-registered business with tight cash flow, getting $12k back next quarter can matter as much as the repayment amount. If the business isn’t registered for GST, the timing advantage disappears because it can’t claim credits under either arrangement.

Cars carry a cap. For 2026–27 the ATO car limit is $69,883, which limits both the GST credit and depreciation on a passenger car under a chattel mortgage. Utes and vans designed to carry a tonne or more, and vehicles seating nine or more, aren’t treated as cars for this purpose.

Why a finance lease can still win on tax

Under a chattel mortgage you claim depreciation over the asset’s effective life, which for a lot of heavy equipment runs well beyond the length of the loan. Under a finance lease you generally claim the payments. When a three-year lease covers a machine the ATO expects to last ten years, the lease can bring deductions forward compared with depreciating it.

Two qualifications:

• Small assets. Eligible small businesses can immediately deduct eligible assets under $20,000 in the income year they start using them, a threshold made permanent from 1 July 2026. For those assets a chattel mortgage usually wins easily on timing.
• Luxury cars. When a leased car costs more than the car limit, the tax rules treat the arrangement as a notional sale and loan. You claim capped depreciation and a finance charge instead of the lease payments, so most of the lease’s tax difference falls away.

The exact outcome depends on your structure, turnover and other assets, which is why accountants often run both versions before a business signs. The equipment finance calculator helps with the repayment side of that comparison.

Comparing quotes on a vehicle or machine right now? Send us the details and we’ll help you sort out which structure fits.

What happens on the last day

Both products commonly finish with a lump sum.

On a chattel mortgage, a balloon is optional. You might set it at 20% or 30% of the price to lower repayments, then pay it out of cash, refinance it or sell the asset. If the sale doesn’t cover the balloon, you make up the gap.

On a finance lease, a residual is standard, and for vehicles the ATO’s guideline minimums apply, ranging from 65.63% of cost on a one-year lease down to 28.13% over five years. You can pay the residual and own the asset, refinance it into a new lease or let the financier sell it. Any shortfall is yours, which is the key way a finance lease differs from an operating lease.

Our guide to residual values explains how to set a sensible end figure so you aren’t left owing more than the asset is worth.

When a chattel mortgage wins

• You want to own it outright and may modify, sign-write or sell it without asking anyone.
• Upfront GST helps your cash flow, especially for big-ticket trucks, machinery and fit-out equipment.
• The asset costs under $20,000 and qualifies for the instant asset write-off.
• You’ll run it long after the loan ends, so depreciation over its real life suits you.
• Simplicity matters. Most equipment financiers offer it, and it’s the default for many vehicle purchases. Our chattel mortgage page covers the mechanics.

When a finance lease wins

• Deductions sooner suit your tax position, typically with long-life assets on shorter terms.
• Your business isn’t set up to hold depreciating assets, for example where a group structure keeps assets in a separate entity or prefers expense treatment.
• Your accountant prefers rental-style payments for budgeting and reporting.
• You plan to upgrade at the end of the term and roll into a new lease rather than keep the old asset.

The finance lease page goes into residual rules and early payout in more detail.

Six questions for your accountant and financier

1. Is my business registered for GST, and how soon do I lodge my next BAS?
2. Will the asset qualify for the instant asset write-off, or will it be depreciated over many years?
3. Is it a “car” under the tax rules, and does its price exceed the car limit?
4. What balloon or residual is being proposed, and what is the asset likely to be worth by then?
5. How is early payout calculated on each option?
6. Does my accountant see any structural reason to own or not own the asset?

If you’re also weighing up hire purchase against a chattel mortgage, the differences there are narrower and mostly about title.

Getting the right structure on the right machine

Choosing between a loan and a lease is one part of the job; finding a financier who’ll approve your business for the asset you want is the other. That’s where we come in, particularly for newer ABNs, credit blemishes or unusual equipment. Our enquiry form is roughly a minute’s work, and your credit history stays exactly as it was. Nothing is sold on or handed around a crowd of lenders; a specialist on our team reads it properly and gives you a call. Fill in the asset, its price and your trading details accurately so the structure we suggest suits from the outset.

Talk to us about financing your next asset →