In a nutshell
Chattel mortgages, hire purchase and leases all fund business equipment and vehicles, but they differ in who owns the asset. With a chattel mortgage the business owns it from day one and the lender holds security. With hire purchase the financier owns it until the final payment. With a lease the financier owns it and you pay to use it. Those ownership differences drive GST, depreciation and what happens at the end of the term.
Key points
- Chattel mortgage: you own it, lender holds security, GST generally claimed up front.
- Hire purchase: financier owns it until the final payment, then it's yours.
- Finance lease: financier owns it; you pay a residual, refinance or return it.
- Operating lease: a rental for part of the asset's life, returned at the end.
- Own from day one
- Chattel mortgage
- Own at the end
- Hire purchase
- GST per payment
- Leases
- Return at end
- Operating lease
When a business buys a ute, a forklift or a new coffee machine, the finance options sound similar and behave differently. The differences come down to one question — who owns the asset during the term — and that answer flows through to GST, tax and what happens at the end. This comparison lays out all four structures.
How do the four compare?
| Chattel mortgage | Hire purchase | Finance lease | Operating lease | |
|---|---|---|---|---|
| Owner during term | Your business | Financier | Financier | Financier |
| Owner at end | Your business | Your business, after final payment | Financier (unless you pay the residual) | Financier |
| GST on purchase price | Generally claimed up front | Generally claimed up front | Claimed on each payment | Claimed on each payment |
| Depreciation | Generally claimed by you | Generally claimed by you | Not claimed by you | Not claimed by you |
| Deductions | Interest and depreciation | Interest and depreciation | Lease payments, generally | Rental payments, generally |
| End-of-term lump sum | Optional balloon | Optional balloon | Residual | None |
| Typical use | Vehicles, machinery, tools | Similar to chattel mortgage | Equipment you may upgrade | Technology, short-life assets |
Tax treatment depends on your circumstances. Confirm with your accountant.
What’s the practical difference between a chattel mortgage and hire purchase?
In day-to-day terms, very little: both spread the cost over the term, both can include a balloon and both end with you owning the asset. The legal difference is ownership during the term. With a chattel mortgage, title passes to you on day one and the lender registers its security on the PPSR. With hire purchase, the financier keeps title until the last payment. The ATO notes that for hire purchase agreements entered into from 1 July 2012, GST credits can generally be claimed up front, which removed one of the old reasons to prefer one over the other.
When does leasing make more sense?
Leasing tends to suit businesses that:
- want to upgrade regularly, especially technology that dates quickly;
- prefer predictable payments that are generally deductible as they’re paid;
- aren’t registered for GST or would rather claim GST progressively;
- don’t want the asset on their balance sheet in the same way, subject to accounting standards.
A finance lease runs for most of the asset’s life and usually ends with a residual. An operating lease is closer to a rental — shorter, often including maintenance, and the asset goes back at the end.
How does the instant asset write-off interact?
For businesses with aggregated turnover under $10 million, the ATO allows an immediate deduction for eligible assets costing less than $20,000 each, first used or installed ready for use in the income year; the ATO confirmed in 2026 that this threshold is permanent. The write-off is claimed by whoever owns the asset — generally your business under a chattel mortgage or hire purchase, but not under a lease. If a write-off matters to you, that can tilt the decision.
How do you choose?
Ask:
- Do you want to own it outright? Chattel mortgage or hire purchase.
- Will you upgrade within a few years? Lease, or a chattel mortgage with a balloon matched to trade-in value.
- Are you GST-registered? Up-front GST credits favour a chattel mortgage or hire purchase for cash flow.
- What does your accountant recommend for depreciation versus deductible payments?
- Is it a short-life item? An operating lease may be simplest.
If you’d like a specialist to lay the options out for your purchase, you can start with a quick enquiry. The full equipment finance entry covers assessment and documents.
What about balloons and residuals?
Both lower regular payments by leaving a lump sum at the end. Set them close to the asset’s realistic resale value and you can sell or trade in to clear them; set them too high and you may owe more than the asset is worth. See repayment structures.
What happens if you sell the asset early?
With a chattel mortgage, you own the asset but the lender holds security, so the loan usually needs to be paid out (or the security released) when you sell — any sale proceeds above the payout are yours. With hire purchase and leases, the financier owns the asset, so an early exit means paying out the agreement or arranging a transfer. In each case, check the early termination terms before signing if there’s any chance you’ll upgrade or sell before the end.
Terms used in this entry
- Chattel mortgage — you own the asset; the lender holds security. Glossary →
- Hire purchase — ownership passes after the final payment. Glossary →
- Finance lease — the financier owns it for most of its life. Glossary →
- Operating lease — a shorter rental, returned at the end. Glossary →
Worked example (illustrative)
Illustrative only. A GST-registered building company needs a new ute and replacement laptops for its site supervisors. It keeps vehicles for six to eight years but replaces laptops every three.
The ute suits a chattel mortgage: the company owns it, claims GST up front and depreciation over time, and plans to keep it well beyond the term. The laptops suit an operating lease with an upgrade at the end of three years, keeping payments predictable and avoiding old equipment piling up. Different assets, different structures, one finance conversation.
Buying equipment? Get the structure right first.
The right structure depends on the asset, your tax position and how long you’ll keep it. Enquiring takes about 60 seconds and there’s no credit check when you first enquire. We don’t send your details to a list of financiers — a real person reviews what you’re buying and calls you. Please describe the asset, its cost and your GST status accurately so we can match the right option first time.
Frequently asked questions
Which is best for tax?
It depends on your business. Broadly, with a chattel mortgage or hire purchase the business claims depreciation and the interest component, while lease payments are generally deductible as they're paid. Your accountant should confirm which suits your circumstances.
How is GST treated on each?
The ATO explains that for hire purchase agreements entered into from 1 July 2012 you can generally claim the GST credit up front. Chattel mortgages are treated similarly because you own the asset. For leases, GST is claimed on each lease payment.
Can I use the instant asset write-off with equipment finance?
Where the business owns the asset — such as under a chattel mortgage — it may claim the $20,000 instant asset write-off if eligible. Under a lease, the financier owns the asset, so the lessee doesn't claim the write-off.
What is a residual?
The amount owing at the end of a lease, set at the start. You pay it to keep the asset, refinance it, or return the asset. It's similar to a balloon on a chattel mortgage or hire purchase.
Which is most common for business vehicles?
Chattel mortgages are very common for business vehicles and equipment in Australia, especially for GST-registered businesses, but the right choice depends on your tax position and how long you'll keep the asset.