Equipment and vehicles
Chattel mortgage vs finance lease: equipment and vehicle finance explained
The two most common ways Australian businesses finance equipment and vehicles differ mainly on ownership and tax treatment.
- Reviewed by
- Kama Atcheson, Business lending specialist
- Published
- Last reviewed
- Reading time
- 5 min read
Key takeaways
- With a chattel mortgage you own the asset from day one and the lender takes security over it.
- With a finance lease the lender owns the asset and you pay to use it, with a residual at the end.
- Balloons and residuals lower regular repayments but leave a lump sum at the end.
- GST and tax treatment differ, so check with your accountant.
Most business equipment and vehicle finance in Australia is written as either a chattel mortgage or a finance lease. Both spread the cost of an asset over time and both use the asset as security. The differences are about ownership and tax treatment.
Chattel mortgage
- You own the asset from the start.
- The lender registers a security interest (a “mortgage” over the chattel) until the loan is repaid.
- You can usually add a balloon to reduce regular repayments.
- Because you own the asset, you generally account for it on your balance sheet.
Finance lease
- The lender owns the asset and leases it to you for the term.
- You make lease payments and there is usually a residual value at the end.
- At the end you can typically pay the residual, refinance it or return the asset, depending on the agreement.
Side by side
| Feature | Chattel mortgage | Finance lease |
|---|---|---|
| Who owns the asset | You | The lender, during the term |
| End-of-term payment | Optional balloon | Residual |
| Security | Asset | Asset (lender owns it) |
| Typical users | Businesses wanting ownership | Businesses preferring lease accounting |
GST and tax
GST and income tax treatment differ between the two structures and depend on how your business accounts for GST. The ATO explains the GST rules for hire purchase and leasing, but your accountant is the best person to tell you which structure suits your business.
What lenders look at
Asset type, age and resale value, your ABN age and trading history, credit history, and any deposit or trade-in.
Compare equipment finance and vehicle finance, or tell us about the asset.
Questions about this topic
Which is better, a chattel mortgage or a lease?
Neither is better in every case. The right choice depends on whether you want ownership, how your business accounts for GST, and your accountant's advice on depreciation and deductions.
What is a balloon payment?
A balloon is a lump sum due at the end of the term. It reduces your regular repayments but you must pay, refinance or sell the asset to clear it.
