Chattel mortgage, hire purchase, and finance lease are the three main structures for financing a business asset in Australia. They produce roughly the same monthly cost on a given purchase, but they differ on three things that matter: who owns the asset and when, how the tax treatment works, and how the asset shows up in your accounts. This article compares them side by side and explains when each one is the right fit.
The quick comparison
Chattel mortgage: you own the asset from day one, the lender takes a mortgage over it as security, you claim GST on the purchase up front, you depreciate the asset, you deduct interest. The most common structure for ABN holders.
Hire purchase: the lender owns the asset until you make the final payment, at which point ownership transfers to you. GST treatment is staggered across the term rather than claimed up front. The structure is less common today than it once was but still relevant in some tax positions.
Finance lease: you lease the asset for a term that is usually most of its useful life, with a residual value at the end. For tax purposes the asset is treated more like a long-term rental than a purchase, even though you may end up owning it at the end via an offer to acquire.
Chattel mortgage explained
You own the asset from day one. The lender registers a security interest on the PPSR so they can recover the asset if the loan defaults. You make repayments (usually monthly) over the agreed term, typically with a balloon at the end. Once the balloon is paid, the security is discharged and the lender has no further claim.
Tax treatment for a GST-registered business: claim the GST on the purchase price in your next BAS, deduct the interest portion of each repayment against business income, depreciate the asset using your usual depreciation method. Where the instant asset write-off applies, the entire asset value can sometimes be deducted in the year of purchase.
Accounting: the asset sits on your balance sheet as an asset; the loan sits as a liability. Standard, well understood, easy to administer.
We have a full article on chattel mortgages that covers the mechanics in more detail. The summary version for this comparison: chattel mortgage is the default for profitable, GST-registered ABN holders who actually want to own the asset.
Hire purchase explained
The lender owns the asset until you make the final payment, at which point ownership transfers to you. Operationally, you have full use of the asset throughout the term, and you make periodic payments (often monthly) that include both an instalment of the asset cost and an interest charge.
Tax treatment is the main reason hire purchase is sometimes chosen over chattel mortgage. Because the lender technically owns the asset during the term, GST on the asset cost is staggered across the payments rather than claimed up front. For some cash-flow situations, that even-out works better than the up-front claim of a chattel mortgage. For most situations, the chattel mortgage timing is cheaper in net present value terms.
Hire purchase is less common today than it was 20 years ago, partly because chattel mortgage tax treatment is favourable for most businesses and partly because finance lease has taken some of the use cases. It still appears for some specific structures (older equipment, particular industries, certain trust arrangements) and is worth knowing about.
Finance lease explained
You lease the asset from the lender for a defined term, often most of its useful life. The lease payments cover the lender cost of capital plus a contribution towards the asset value. At the end of the term, a residual value is owed. You can pay it out and acquire the asset, refinance the residual, or in some cases hand the asset back.
Tax treatment: lease payments are fully deductible as a business expense (subject to the rules around motor vehicles and certain other assets). GST on each lease payment is claimable in the BAS in which it is paid. The asset does not appear on your balance sheet in the same way a purchased asset does, although newer accounting standards (AASB 16) have pulled most leases onto the balance sheet for reporting purposes.
Finance lease suits businesses that want predictable, flat cost across the asset life, do not want the up-front GST claim or asset on balance sheet, and may want flexibility about whether to acquire the asset at the end. It also suits situations where the asset is being held for use rather than for any expectation of resale.
How to choose between the three
A few practical decision rules narrow it down quickly.
You want to own the asset, claim GST up front, depreciate the asset: chattel mortgage.
You want the staggered GST treatment for cash flow or accounting reasons, do not mind the lender owning the asset during the term: hire purchase.
You want the fully deductible lease cost, predictable flat expense, less administrative complexity, no concern about ownership: finance lease.
You want to refresh the asset regularly (every 3 to 5 years) and avoid residual value risk: consider an operating lease, which is similar to a finance lease but with the lender taking the residual risk and you handing the asset back at the end.
Tax differences that matter
The tax treatment is the single biggest reason to choose one structure over another, and it depends heavily on your specific situation. The general patterns:
A profitable, GST-registered business that wants to maximise short-term tax benefit usually does best with chattel mortgage. The up-front GST claim is real cash, and the depreciation is straightforward.
A business with cash flow timing concerns or specific structural preferences (certain trust structures, partnership arrangements) sometimes prefers hire purchase for the staggered GST and the lender ownership during the term.
A business that does not need the asset on balance sheet and prefers flat predictable cost often prefers finance lease.
We are not tax advisers, so the specific numbers for your business should be worked through with your accountant. The brokerage role is to make sure all three structures are presented as options when they are relevant, and to arrange whichever one your accountant agrees suits best.
Common questions
Which is cheapest? On a same-purchase basis, the headline monthly cost is usually similar across the three. The tax treatment is where the real difference shows up, and that is specific to your business.
Can I switch structures part way through? Generally no, but you can refinance at any point if circumstances change.
Which is fastest to settle? Chattel mortgage is usually the fastest because it is the most standardised. Hire purchase and finance lease can take longer, particularly for specialist assets.
Does the structure affect lender appetite? Yes. Some lenders prefer or specialise in particular structures. Part of the brokerage role is matching the structure to a lender that prices well for it.
Where does novated lease fit? Novated lease is a different product entirely: it is an employee benefit arrangement for personal vehicle use, typically arranged through salary-packaging providers. It is not normally relevant for business asset finance.
Where to from here
We arrange chattel mortgage, hire purchase, and finance lease across our whole lender panel. You pay us nothing; the lender pays us a commission when your finance settles. A 20-minute brief, with your accountant if relevant, is enough to work out the right structure and which lenders price it best for your situation. Book one through our contact page.
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