Chattel Mortgage vs Finance Lease
A plain-English explanation of the finance structure, how ownership and GST are treated, and which option suits which business.
Which is better?
Understanding the product matters as much as the rate. Australian equipment funding runs on a small set of structures — chattel mortgage, finance lease, hire purchase, operating lease and straight equipment loan — and each treats ownership, GST and tax differently even when the repayment looks identical.
Under a chattel mortgage you own the asset from day one and the lender registers a security interest on the PPSR. GST on the purchase price is generally claimable up front in your next BAS, and depreciation plus the interest component are deductible. Under a finance lease the financier owns the asset and rents it to you; GST applies to each rental payment and the rentals are usually deductible in full, with a residual payable at the end. Hire purchase sits between the two: you take possession immediately and title transfers with the final payment.
The right choice depends on your accounting method, whether you want the asset on your balance sheet, how long you intend to keep it, and whether you value a lower monthly payment or lower total cost. Cash-accounting businesses that want the GST back immediately usually favour a chattel mortgage; businesses that rotate equipment frequently often prefer a lease.
Confirm the tax treatment with your accountant, then let a Lonix broker price the same asset across structures so you can compare like for like.
Related questions
- Which structure gives the best tax outcome?
- It depends on your accounting method and how you hold the asset — confirm with your accountant before signing.
- Can I claim the GST up front?
- Generally yes under a chattel mortgage. Under a lease, GST applies to each rental payment instead.
- Do I own the asset?
- Under a chattel mortgage and hire purchase you end up owning it. Under a lease the financier owns it until any residual is paid.
- Can I switch structures later?
- Not on the same contract, but refinancing at a later date lets you change the structure.